Tax Treaty Case Law around the Globe 2016

S. 21Chapter 2 Argentina: Can a PE Deduct General Administration Expenses?

Axel A. Verstraeten

2.1. Introduction

Argentine tax authorities historically challenged expenses incurred abroad deducted against local-source income. The position of the tax authorities was even harder in case of local branches of foreign parent companies trying to deduct general administration expenses allocated by indirect methods (sales, gross profit, etc.).

Case law has confirmed the position of the tax authorities almost every time, with the exception of few cases. The Italtel case is no exception. The Tax Court denied the deduction of general administration expenses allocated by a parent company to its Argentine branch.

The importance of Italtel is that, for the first time, the deduction of expenses incurred abroad is discussed in the context of a tax treaty.

2.2. Facts of the case

Italtel S.p.A., a company based in Milan, Italy, dedicated to provide solutions to IT companies, has a branch in Argentina. The branch’s activity was limited to participate in tenders organized by local telecommunication operators, such as Telecom and Telefonica, import hardware and software, install such equipment and provide after-s...