In brief

The Supreme Court of Justice of the Province of Buenos Aires (SCBA) declared the unconstitutionality and inapplicability of the liability regime of legal representatives and company administrators in the matter of taxes and tax penalties in the Toledo, Juan Antonio c/ARBA. Review incident case (case C. 121.754).

In more detail

On 30 August 2021, in the Toledo, Juan Antonio c/ARBA. Review incident case (case C. 121.754), the SCBA declared the unconstitutionality and inapplicability of Articles 21, 24 and 63 of the Tax Code of said province ("Tax Code"), which establish the liability regime of legal representatives and company administrators in matters of taxes and tax penalties.

1. Facts of the case

As part of the Juan Antonio Toledo reorganization proceedings, the Buenos Aires Province Tax Authority (ARBA) requested the verification of a credit for the tax obligations of Supermercados Toledo S.A., of which Mr. Toledo was director.

The said request for verification was based on the alleged joint and several liability of the director for the taxes owed by the company, which was challenged by Mr. Toledo in the case in question.

2. The liability regime of legal representatives and company administrators in the Tax Code

Article 21 of the Tax Code provided that:

The following persons are obliged to pay taxes, surcharges and interests, as responsible for the fulfillment of the tax obligations of taxpayers — in the same way and opportunity that applies to them:

  1. Those who administer or dispose of the assets of the taxpayers, by virtue of a legal or conventional mandate.
  2. The members of the administrative bodies, or those who are legal representatives, of associations, entities and companies, with or without legal status; as well as those of assets intended for a specific purpose, when both are considered by the tax laws as economic units for the attribution of the taxable event (...).

On the other hand, Article 24 of the Tax Code, in its pertinent part, indicated that:

The responsible parties indicated in articles 21 and 22, are jointly and severally liable with the taxpayer for the payment of taxes. They will be exempt from this joint and several liability if they prove that they have demanded from the taxpayers the funds necessary for the payment and that they placed them in the impossibility of compliance in a correct and timely manner.

Finally, Article 63 established that:

In all cases in which, by virtue of the provisions of this Code or its complementary laws, the application of a fine corresponds, if the offense was committed by regularly constituted legal entities, the members of the administrative bodies will be jointly and severally liable for the payment of the same.

3. Grounds for the ruling

In the ruling, the SCBA analyzed the treatment referred to the responsibility of legal representatives and company administrators both in the Tax Code and in the Tax Procedure Law No. 11,683.

In this regard, the SCBA warned that, contrary to what happens at the national level, where the responsibility of the representatives and administrators of companies for the payment of taxes is subjective, that is, it is necessary that the person responsible has failed to comply with its duties and that said breach is attributable to them by way of fraud or fault, the system designed by the province of Buenos Aires operates objectively in the same way and provides an opportunity to the taxpayer, without admitting reasonable possibilities for its exemption or waiver.

Consequently, in the opinion of the SCBA, although it is not feasible to require a strict symmetry of the provincial regulations with the equivalent regulations referring to tax obligations at the federal level, it does not imply recognizing such a vast and decontextualized margin of maneuver that, in essentially related or equivalent matters, makes it possible for the local law to exaggerate the unfavorable treatment of the subjects affected by tax duties, affecting their subjective situations in a much more burdensome way than those that, in similar circumstances, the national tax regime dispenses.

The system thus outlined does not constitute a response that satisfies the parameters of reasonableness and due process that must be respected in the relations between the Treasury and taxpayers, or, as in this case, those responsible for third-party debt, a situation that must be examined even more closely.

The provision of the Tax Code puts those responsible for foreign debt facing a system that does not respect due process, since it does not respond adequately to the way in which the obligations and duties of the parties involved are structured. In addition, because it notably hinders the exercise of the right of defense of representatives and administrators, who are required to face the tax authority in a concomitant manner with the taxpayer company that they are part of, subject to which they must accredit actions that are attributable to them for the purposes of exempting themselves from their own responsibility.

The SCBA also compared the regulation of directors' liability in the Business Corporations Law No. 19,550 and in the Tax Code. In this way, the SCBA observed that in national law the attribution of responsibility requires the existence of fraud or fault of the director, but not so in the local regime, which makes no reference to the willful or negligent breach of tax duties, but rather simply affirms that the members of the administrative bodies are jointly and severally liable with the taxpayers for the payment of the taxes.

In this sense, the SCBA understood that there is no doubt that, as it is a substantial aspect of the relationship between creditors and debtors, it is the responsibility of the national legislator to regulate it, so it is not up to the provinces to enact laws that are incompatible with what the national regulations establish in this regard. This is because, having delegated to the nation the power to dictate them, the provinces admitted the preeminence of the laws of Congress — in matters of common law — and the necessary restriction of not dictating norms that modify or contradict them.

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