Deduction Of Interest And Exchange Differences From A Loan Entered Into To Purchase Shares

Author:Ms María Inés Brandt, Walter C. Keiniger and Mariana Batalle
Profession:Marval O'Farrell & Mairal
 
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The Argentine Tax Court decided on a case related to the deduction of interest and exchange differences from a loan entered into to purchase shares.

On March 30, 2016 Division B of the Argentine Tax Court ("Tribunal Fiscal de la Nación") ruled in re: "IVAX Argentina S.A. s/recurso de apelación", where the taxpayer and the Argentine Tax Authority discussed as the main issue the deductibility, for income tax purposes, of interest and exchange differences due to a loan entered into to purchase shares.

Pursuant to the facts stated in the Court's judgment, the company had entered into several loans to execute two leveraged buyouts (execution of loans to purchase shares, followed by the merger of the acquired companies).

The company deducted the interest paid as well as the resulting exchange differences. The Argentine Tax Authority challenged the deduction on the grounds that the expenses were related to non-computable profits (dividends), based on the principle that the deductions belong to the source income.

On the other hand, the taxpayer supported the deductibility of interest and exchange differences on the grounds that the loans were not entered into to purchase shares. In addition, the company considered that, even if that were the case, expenses would be entirely deductible due to being related to two types of income: dividends (non-computable profits) and capital gains (taxable income). To such extent, it argued that being an entity, it was ruled by the principle of global liabilities ("principio de universalidad del pasivo"), which states that all liabilities finance all of the...

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