This edition of Argentine Business Law Watch1 reports on the taxation of corporate income as determined without inflation adjustment.

Adjusted Financial Statements: An Explainer

Before Argentina pegged its currency to the dollar in 1991, Argentine corporate and tax laws allowed inflation adjustments geared toward reporting and taxing corporate income fairly. The so-called "Convertibility Law" enacted in April 1991 eliminated currency inflation and for ten years inflation adjustments were unnecessary, although the income tax rules providing for them were never actually repealed.

As reported in our July 5, 2002 and August 2, 2002 editions of "Argentine Business Law Watch", the devaluation of the Argentine currency in early 2002 and the return of double-digit inflation rates prompted a cry for inflation adjustments. Companies, particularly those with dollar-denominated liabilities, reported substantial losses and, in some cases negative net worth. The Argentine government eventually heeded the demand for a change and released Decree 1269/2002 to permit the filing of inflation-adjusted financial statements.

A Different Criteria for Taxpayers

The government’s tolerance of inflation-adjusted financial statements for reporting purposes has not been carried over to its tax rules. Several corporate taxpayers—especially those with substantial fixed assets or inventories—continue to be taxed on inflation-based gains that have little to do with profit. As a result, inflation adjustments for tax purposes and the demand for legislative reform have again returned to the forefront.

Thus far the Duhalde administration has refused to repeal existing tax rules and restore inflation adjustments for tax purposes, instead pushing for a permanent repeal of all such inflation adjustments. In response, several of our clients have asked us to analyze their right to challenge the applicability of current income tax rules that fail to consider the effects of inflation. We have concluded that in some cases the failure to apply an inflation adjustment for tax purposes may be considered an unlawful confiscation by the government.

We are currently reviewing with clients their claims against the government to obtain an order declaring unconstitutional the prohibition of inflation adjustments for tax purposes. These claims include an interim request to allow the taxpayer to determine its taxable income, adjusted for inflation, pending a final decision on the matter. The interim request also includes a stay on the Argentine tax authority’s issue of a deficiency notice to the taxpayer to demand amounts otherwise due under current tax rules.

Several court decisions have already granted similar interim relief to other taxpayers.2 Under Argentine law, tax relief is specific to the claimant and may not be extended to benefit a person not party to the action. Nonetheless, the willingness of the courts to allow inflation adjustments for tax purposes, at least in the interim, has provided timely encouragement to corporate taxpayers balking at taxes payable on profits that exist only on the government’s ledger.

1 "Argentine Business Law Watch" is a periodic news service provided free of charge to clients and friends of Negri, Teijeiro & Incera. To read past editions of "Argentine Business Law Watch", visit our website at

2 See, e.g., Establecimiento Agropecuario San Luis S.A. v. AFIP (January 13, 2003); Cía. Argentina de Seguros Caruso S.A. v. Estado Nacional (November 20, 2002); S.R.L. v. Poder Ejecutivo (January 20, 2003); Kentavros S.A. v. PEN (December 20, 2002); Las Yerbas S.A. v. P.E.N. (February 18, 2003) and Siderea S.A. v. Ministerio de Economía (February 12, 2003).

This article is provided as a service to clients and friends of Negri, Teijeiro & Incera. It is not intended to impart legal advice on any matter.