Argentina’s Supreme Court has ruled that commissions paid by Argentine borrowers are Argentine-source business income and subject to withholding tax. The case was Hidroeléctrica El Chocón SA c/ DGI where Hidroeléctrica El Chocón (HEC), paid commissions to two overseas firms for arranging a loan with Chase Manhattan Bank (CMB) but did not deduct any withholding tax on the basis that they were service fees. Since the agents were non-residents, the services were rendered from abroad.
The AFIP (Argentinian tax administration) argued that the transactions were technical advice within the meaning of Article 12 of the Income Tax Law, under which advisor’s fees paid by Argentine residents are considered Argentine-source income. HEC was successful at the level of the Tax Tribunal and the Court of Appeals, but failed to convince the Supreme Court. However, the Court applied Article 5 of the ITL, which deems, business profits to be Argentine-source if they are derived from goods situated, placed, or economically used in Argentina. The Court determined that goods should be viewed as “placed” in Argentina if such goods effectively find a market in Argentina.
