Argentina: Supreme Court Decision on Non-Taxation of "Golden Handshakes"
Article 20 of the Income Tax Law provides that severance amounts paid in line with the amounts prescribed by law are tax exempt. However, the law is silent on payments made in excess of this (‘golden handshakes’) and this had led to inconsistency in the outcome of some recent cases.
On July 15, the Supreme Court of Argentina covered off the issue in the case of Negri, Fernando Horacio c/EN – AFIP-DGI and issued an interpretive ruling on how to tax payments in excess of the mandatory severance amounts.
In the case in question, Mr. Negri was terminated and paid his mandatory severance payment but also an additional ‘golden handshake.’ The Supreme Court held that the additional payment was also tax free, citing Article 20 of the Income Tax Law which states that for a payment to be taxed, it must be considered regular or recurrent and must derive from a permanent source. By its very nature, a termination payment falls outside of this definition.