November 20, 2014 | By Keith Martin in Washington, DC

Argentina addressed a VAT issue.

The Supreme Court held in September that the base for calculating value added taxes on payments to foreign suppliers includes any tax gross up to cover income taxes on fees paid to the foreign supplier.

Puentes del Litoral holds a concession to build a toll road between two cities, Rosario and Victoria. It made payments under services agreements with foreign companies who provided the know-how. The foreign companies submitted separate invoices for gross ups for Argentine income taxes on the service fees. The general VAT rate in Argentina is 21%. VAT applies to fees for services.

The Argentine tax authorities take the position that VAT must be paid on tax gross ups because the gross ups are part of the cost of the services. The Supreme Court agreed. The Federal Tax Court had been split on the issue: two of the four “chambers” agreed with the tax authorities and two did not.

VAT is paid by the Argentine company receiving the services.

contributed by Keith Martin in Washington