Argentina: The Argentine Tax Authority's Position On Bonuses Paid Due To Termination Of The Employment Relationship By Mutual Agreement

The Argentine Tax Authority settles its position regarding the treatment of bonuses received by an employee derived from the termination of the labor relationship by mutual agreement.

Through Regulation No. 4/2016, published in the Official Gazette on August 18, 2016, the Argentine Tax Authority stated that bonuses paid to the employee due to the termination of the labor relationship by mutual agreement are not levied on Income Tax, and consequently excluded them from the current withholding regime.

This expected Regulation demonstrates the Tax Authority's position regarding the Argentine Supreme Court of Justice precedent "Negri Fernando Horacio c/ EN AFIP-DGI", settled on July 15, 2014.

In the abovementioned precedent, the Supreme Court ruled that the payment received by the employee due to the termination of the labor relationship by mutual agreement is not levied on Income Tax because such bonus for termination of the employment relationship lacks the periodicity and permanence of source that Income Tax Law requires.

Similarly, the Supreme Court had already ruled in the "Cuevas" and "De Lorenzo" cases, establishing that the amount of money paid to the employees due to the termination of the employment relationship were not affected by Income Tax because those payments did not have the requirements of periodicity and permanence of source required by Income Tax Law for the individual taxpayer. The first of the mentioned cases involved payments made in compensation for stability and union resources, and the other one involved payments originated in dismissal due to pregnancy.

Under that scenario, the Argentine Tax Authority issued Regulation No. 3/2012 stating that payments received by the employees in compensation for stability and union resources, likewise dismissal because of pregnancy, were not levied on Income Tax. However, the Argentine Tax Authority refrained from comment on the Supreme Court decision settled in the "Negri" case.

Recently enacted Regulation No. 4/2016 allows us to understand the Tax Authority's position regarding the treatment of Income Tax for such bonuses.

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