The European Union (EU), as well as the Organisation for Economic Cooperation and Development (OECD), have been cracking down on concepts such as 'tax abuse' and 'aggressive tax planning'. Tax abuse is normally referred as to the achievement of improper tax benefits circumventing the 'spirit of the law' by using a structure absent of valid commercial reasons. The concept of tax abuse likely stems from the concept of abuse de droit or abuse of rights that came about in France in the famous case of the French chimneys in the 19th century. It is a derivation of the principle of good faith.
The concept of aggressive tax planning is more recent and perhaps more difficult to grasp. The OECD refers to it profusely but does not provide a definition. Perhaps one definition could be "the exploitation of the difference resulting from the concurrent exercise of two tax jurisdictions in order to achieve either no single taxation (double non-taxation) or negative taxation".
In Argentina, a country that once was seventh in the world in terms of gross domestic product (GDP) per head, tax authorities have managed to implement the highest tax burden in the world. In this context, we refer to a new mechanism by which tax authorities have managed to tax income tax on non-existing income via the application of an inflation adjustment mechanism to adjust financial statements, but which is not applicable to income tax calculation. We consider this strategy to be an abusive or aggressive tax collection mechanism imposed by the Argentine government and tax authorities.
The strategy has been attributed to Jean-Baptiste Colbert, who served as France's minister of finance during the reign of King Louis XIV and coined the phrase: "the art of taxation consists in so plucking the goose as to procure the largest quantity of feathers with the least possible amount of hissing" - meaning that the key to a successful abusive tax collection is to have many different taxes and ensure that none of them surpasses the constitutional thresholds for violating private property, thus making it burdensome for taxpayers to contest the relevant tax.
The inflation adjustment and the taxation of inexistent profits are slowly, but steadily, eating the capital of companies.
Inflation adjustment in Argentina
Since the creation of the Argentine Central Bank in May 1935, the average yearly inflation rate has been approximately 200 percent, the exception being from 1991 to 2001 when the...