Sunday, March 26

Does the gift and inheritance tax have all its past ahead of it?

And didn’t there exist in Argentina a similar tax many years ago? Yes, it was a national tax, which was the subject of repeated controversies in its application before the Supreme Court. To such an extent that it was finally repealed. The same fate befell the tax that was in force for a short time in the Province of Entre RĂ­os, a jurisdiction in which the justice declared it unconstitutional for not respecting principles of equity, tax capacity and for being confiscatory, after which it was also repealed.

But then, is there currently a tax on the free transfer of goods? At the moment the only jurisdiction that maintains a tax of this type is the Province of Buenos Aires.

And what kind of tax are we talking about? It is a direct tax, therefore according to the Constitution it corresponds to the provinces, and only exceptionally to the National Congress. Although several direct taxes were exceptionally established by Congress, the existence of this tax in the Province of Buenos Aires and the recent Federal Consensus 2021 suggest that the power to establish it will continue to be provincial. That is, there will not be a single free transfer tax. Goods, but as many taxes of this type as jurisdictions implement it. It will be necessary to be to each provincial law to know the particularities in each of those jurisdictions.

1|Agreement for its generalization

Why is this tax being talked about again? The Fiscal Consensus 2021 – an agreement law promoted annually by the National Executive, and to which the different provinces and the City of Buenos Aires adhere or not – established that the jurisdictions that adhere to it, “within the course of the year 2022, will try to legislate a Tax on any increase in wealth obtained gratuitously. For the moment, all the Provinces adhered to this Consensus, with the exception of La Pampa, San Luis, and CABA.

What scope would this tax have? According to the Fiscal Consensus proposal, the tax would fall on assets located in the territory of the jurisdiction in question, and assets outside of it when the beneficiary is domiciled in that jurisdiction. On the other hand, enrichments resulting from: (i) inheritances; (ii) legacies; (iii) donations; (iv) inheritance advances; (v) any other transmission that implies a patrimonial enrichment for free.

But could it happen that a province exceeded its limits by sanctioning it? If a province signatory to the Consensus, for example, extended the application of the tax to cases in which the donor is domiciled in that Province -an event not provided for in that Consensus-, this could be judicially qualified as a violation of “intra-federal law”, and therefore be declared unconstitutional.

And could there be the case of double taxation? Double and multiple too. If the donee were in a province that sanctioned the tax, and the assets in other provinces that also did so, the taxing powers could overlap. Agreements should eventually be signed between the different jurisdictions to avoid these situations.

Could the provinces sanction an inheritance tax with retroactive clauses? The principle of non-retroactivity of the law restricts the sanction of tax legislation with retroactive effects, under certain specific requirements. Under a certain intricate theory, the implementation of “lock clauses” is justified when a supposed “news effect” is verified that produces the parliamentary discussion of a certain tax. This was the case, for example, with the Solidarity Contribution, which established a period of 180 days prior to the entry into force of the law, by which it was allowed to ignore changes in assets that would lead to an evasive scheme or avoidance of payment of the tax. . These types of clauses are markedly unconstitutional for several reasons, even more so if the tax is intended to be permanent.

2|Scopes, donations, trusts and others

Could the donation of the bare property be achieved with reservation of usufruct? As long as it is a donation, it could be reached by the tax. However, it would be appropriate to consider the effective enrichment that occurs by receiving that bare property, since otherwise the principle of taxable capacity would not be respected.

And what about trusts? In trusts or trusts, enrichment does not occur when the assets are transferred to the trustee -who simply manages them-, but when they are distributed to the beneficiary. This situation was even solidly recognized by the only jurisdiction in which the tax is currently in force. Given that the 2021 Tax Consensus establishes that what is taxed is the “increase in wealth”, only when the latter occurs is the tax applied.

And in that case, what about the beneficiary of a trust? Along these same lines, any type of presumption of enrichment with respect to a beneficiary of a trust due to its mere quality as such and before receiving a distribution, would not respect the principle of taxable capacity, and for that reason would be unconstitutional. In effect, the beneficiary of a trust has no actual right or control over the assets, only a potential or expected right. You could receive something from the trust, as well as not receive it or receive something different, depending on what the administrator or trustee decides. Strictly speaking, the beneficiary does not even have to be aware of the existence of the trust. This being the case, he may not be affected by the tax while it is unknown what goods he will receive, or when he will receive them, or if they will ultimately correspond to him.

What if the beneficiary of the trust receives a distribution of assets located abroad, after having moved his domicile abroad? In such a case there would be no valid territorial link with any province, so the tax would not be applicable. In turn, any provincial regulation that intends to tax assets that are outside its jurisdiction should be qualified as exorbitant for not respecting the principle of territoriality of taxation. The Supreme Court has already repudiated this type of excesses by ruling in almost a dozen rulings on the old tax on free transmission, that the matter of the tax must always be related to the purposes that the province that establishes them must fulfill, with which A province does not have jurisdiction to tax assets that are located outside of it, as long as it is not in a position to provide a public service related to those assets.

And then what happens if I donate and later regret it, or if I donate with conditions? Once the donation is accepted, it can be revoked due to ingratitude of the donee, due to the birth of the donor’s children after the donation -if it had been expressly agreed-, and due to the lack of execution or fulfillment of the charges established for the donee in the donation. In turn, it is noteworthy that the underlying national legislation assigns to donations with a charge (that is, with conditions to be met by the donee) the character of onerous -that is, not free- when there is an equivalence of value between the thing donated and the established charges. In that case, it would be controversial to claim that the tax reaches these donations, since the provincial legislation could not classify as free what the national legislation classifies as onerous.

What if there is a reversion agreement? In donations, it can be agreed that, if the donee dies before the donor, the donation is reversed and the assets return to the donor. There are controversial precedents where ARBA considered that this reversal is also a free transmission, and that therefore it is affected by the tax.

3|Final thoughts

For now, this uncomfortable tax is applicable only in the Province of Buenos Aires. It is to be hoped that it will soon be replicated in some more jurisdictions. Martin still has some time to plan how not to further increase the tax on his assets. You should think of a neat and legally adequate structure to protect your heritage and that of your family as best as possible. It won’t be easy for you. But it will be worth it.