Adjustment for fictitious income inflation in Profits in companies

Although Justice, legislation and political conflicts have been imposing partial solutions to the problem of adjusting for inflation, fictitious rents in the calculation of Income Tax are still a reality for many companies.

Aspects such as losses, the valuation of merchandise and the balance for income from foreign sources they still had no solution in the patches on adjustment for inflation.

Inflation Adjustment Swings

The return to the inflation scenario, as a result of the exit from convertibility at the beginning of 2002, generated a controversy in tax matters whose tails continue to be verified, recalled Andrés Edelstein, partner of the Edelstein, Mariscal, Torassa y Asoc study.

A law of the 90 vedaba taxpayers the possibility of applying the tax inflation adjustment provided for in the Income Tax Law, he indicated.

This state of affairs, which lasted more than 15 years, was modified by the tax reform of 2017, which reintroduced the adjustment for inflation of the Income Tax Law for the years beginning on or after January 1, 2018, provided that in the first 3 years the 33.33% inflation rate was exceeded in each one, he explained.

If the adjustment is applied, in the first years its impact should be computed deferred at the rate of a third per yearhe specified, and added that, collection needs, caused successive modifications of the law further extending the deferral, what happened from 3 to 6 years.

The adjustment for inflation was enabled for the fiscal year ending on December 31, 2021

The end of the adjustment for inflation was not complete

The mechanics of imputation of the adjustment for tax inflation in 6 years, which applied for the year ends ended in December 2019 and 2020, could not be legally extended at the end of last year, so as of the fiscal years ended December 31, 2021 the adjustment fully operatesEdelstein remarked.

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However, numerous Provisions of the Income Tax Law that operate in a complementary manner to the adjustment for inflation and allow the determination of the fiscal result in “constant currency” continue to be inoperative as the prohibition on indexing the balances of the 90, he warned.

In this sense, among the various issues that generate significant distortions, Edelstein mentioned the following:

  • The update of the tax losses that are transferred for their computation to future exercises.
  • The valuation of Exchange realty.
  • Las foreign source income and the assets and liabilities affected to their generation.

The adjustment for inflation in Justice

It’s been 20 years since the taxpayers litigate before the Courts to obtain a pronouncement that allows them to apply the inflation adjustment mechanism in the Income Tax, in scenarios of high monetary depreciation, Gastón Miani, from the Tavaroni, Rovelli, Salim & Miani law firm, reported.

The companies resorted to the Courts for the failures in the adjustment for inflation in losses and property, plant and equipment

The companies resorted to the Courts for the failures in the adjustment for inflation in losses

That journey ended with a sentence from the Supreme Court of Justice on the cause Candythrough which it established as a criterion that the prohibition of applying the adjustment for inflation was not unconstitutional in itself, to the extent that it was not confiscatory, he added.

For the specific case known as Candy, the Court determined that it was confiscatorio a tax whose effective rate was 62% on the updated tax result, he pointed out.

From there, the judges resolved hundreds of cases with different rates of confiscation, until the law was modified for the 2018 fiscal period and the application of the adjustment mechanism was expressly allowed, but with some restrictions, he said.

between those restrictions, it appeared not to include the updating of losses or the amortization of fixed assets, and the adjustment must be applied deferred over time (one sixth per year), all of which was also the subject of litigationhe warned.

“Given that the adjustment for tax inflation has already been fully reintroduced, it is imperative to face the necessary legal reforms that allow its proper functioning, granting certainty to taxpayers and avoiding sterile controversies,” said Edelstein.



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