Tax Innocence II and Reasonable Timeframe: Updates on Fines, Statute of Limitations, and Extinction of Tax Powers

I. Law 27,826: Tax Innocence II

On October 9, Law 27,826, enacted on September 17, was published in the Official Gazette, amending Law 11,683 on Tax Procedure and the regime known as “Tax Innocence” under Law 27,799 (Official Gazette 01/02/2026). It also reforms the penalty regime of Law 25,191 on Rural Workers. The law enters into force on the day of its publication (art. 19), with the exceptions noted below.

1. Significant discrepancy and three-year statute of limitations

Law 27,799 reduced the statute of limitations for the tax authority's actions to three years for registered taxpayers who filed their tax return on time and, where applicable, settled the resulting balance, provided ARCA does not challenge that return upon detecting a “significant discrepancy” (art. 56, subsection a, of Law 11,683). Law 27,826 replaces the definition of that discrepancy (unnumbered article following art. 56):

The change in the comparison base for the percentage-based scenario—from the balance in favor of the Tax Authority to the assessed tax—generally increases the difference required to reach 15%, since the assessed tax is not reduced by prepayments, withholdings, and collections credited. Conversely, the reform broadens the other two scenarios: the reduction of tax losses is now counted toward the $100 million threshold, and the improper crediting of withholdings, collections, advance payments, and prepayments automatically triggers, on its own, the five-year statute of limitations. The law does not contain a specific transitional provision regarding the application of the new definition to periods already audited or under audit. The $100 million amount will be updated annually by UVA starting January 1, 2027 (art. 43, Law 27,799).

2. Formal fines: permanent 25% reduction and extraordinary 50% reduction

The law incorporates Article 49 bis into Law 11,683, whereby fines under Articles 38, 39, and the unnumbered articles incorporated following them are reduced by operation of law by 25% when the offender is a micro, small, or medium-sized enterprise (art. 2, Law 24,467) or an individual, undivided estate, or non-profit entity that does not qualify as a Large National Taxpayer. The reduction does not apply to substantive fines (arts. 45 and 46) or closure penalties. With the amounts established by Law 27,799, some of the most frequent fines are as follows:

In addition, Article 17 establishes an extraordinary 50% reduction for formal fines under those same articles that meet the following conditions:

● Entities. MSMEs and individuals, undivided estates, or non-profit entities that are not Large National Taxpayers.

● Infractions covered. Those committed before October 9, 2026, corresponding to obligations that matured on or after the effective date of Law 27,799 (January 2, 2026), which are not final or, being final, have not been paid.

● Requirements. Prior or simultaneous compliance with the omitted formal obligation. Availing oneself of the benefit implies an unconditional acquiescence to the unreduced portion, the waiver of all actions and rights, and the payment of court costs, even if the fine is under administrative or judicial review.

● No refunds. The reduction does not allow for the reimbursement of amounts already paid prior to the entry into force of the law.

● Regulations. ARCA must issue operating regulations within 30 days of the publication of the law (art. 18). The law does not clarify whether this reduction accumulates with the 25% reduction; this will depend on what the regulations provide.

3. Simplified Income Tax return (individuals)

The reform introduces significant changes to the simplified tax return regime of Law 27,799, of interest to partners, shareholders, and directors. These provisions take effect for tax periods starting on or after January 1, 2025 (art. 13):

● No caps on income or assets. The new art. 38 of Law 27,799 no longer requires income of up to $1 billion or assets of up to $10 billion, and eliminates the Executive Branch's power to set additional requirements. Instead, tax residency is required for the entire period reported, a requirement that does not apply to the election for the 2025 tax period (art. 11).

● Large Taxpayers and public officials. They may only use the simplified method to file and pay the tax return, without the presumption of accuracy or the other benefits of the regime. The restriction applies to those who hold or have held in the past five years the positions listed in the new art. 38 bis, and takes effect upon the enactment of the law.

● Significant discrepancy with a minimum threshold. The same three scenarios described in point 1 apply, but there is no percentage discrepancy if the difference does not exceed 5% of the amount established in art. 1 of the Criminal Tax Regime ($5 million at current values).

● Amendment. The difference is not taken into account if the taxpayer amends the return within 15 business days of notice of the administrative assessment (art. 14) or the ex officio assessment (art. 17) and pays or regularizes the balance with interest.

● Burden of proof and presumptions. The burden of proving the discrepancy falls exclusively on ARCA, which may only rely on what was declared and information from its systems or third parties. Until December 31, 2027, the presumptions in subsections f) and g) of art. 18 of Law 11,683 do not apply, and other circumstantial evidence cannot serve as the sole ground for challenge.

● VAT. It is clarified that the VAT periods covered by the presumption of accuracy are those running through December of the year for which the option was exercised, except in cases of the use of apocryphal documentation or improper crediting of direct income.

● Banking channels. Transactions must be channeled through means authorized by the BCRA or the CNV, at the origin or destination. Banks and other entities subject to AML/CFT obligations before the UIF must consider the proof of accession as a favorable factor, without prejudice to their due diligence obligations.

● Invalidation of the challenge and ongoing proceedings. If the assessment that challenged the regime is overturned on a final basis, the presumption of accuracy is restored, and ARCA must refund the amount paid with interest within 45 business days. Audits and proceedings notified prior to accession shall continue, but anyone who has paid or regularized the adjustment before acceding shall be exempt from non-final fines under arts. 45 and 46, waiving the right to claim a refund. 4. Rural workers: new fines The law replaces art. 15 of Law 25,191 and sets sanctions for failure to register with RENATRE and for failure or omission to register rural employment contracts. Fines are applied per affected worker (or globally per establishment, if individualization is not possible):

II. Reasonable time frame: the “Pan American Energy” case

On October 6, Chamber V of the National Court of Appeals in Federal Administrative Litigation overturned a ruling of the National Tax Court that had confirmed an Income Tax adjustment for the 2009 fiscal year, arising from transfer pricing, along with a fine for omission equivalent to twice the tax. The Court of Appeals did not rule on the merits of the adjustment: it declared the Tax Authority's taxing and sanctioning powers extinguished due to the violation of the taxpayer's right to obtain a decision within a reasonable time frame.

5. The case

The tax audit challenged exports of crude oil and butane gas carried out in 2009 to a related company and independent intermediaries, some located in low- or zero-tax jurisdictions. The Tax Court, by majority, dismissed the statute of limitations defense—deeming the suspension under Law 26,860 to be applicable—and confirmed the adjustment based on the presumption of art. 8, fifth paragraph, of the Income Tax Law, which provides that transactions with independent parties located in low- or zero-tax jurisdictions do not conform to normal market practices. The timeline noted by the Court of Appeals was as follows:

More than seven and a half years elapsed between the Tax Authority's answer and the Tax Court's ruling, and almost seventeen years passed between the audited period and the Court of Appeals' decision.

6. Grounds of the judgment

● Comprehensive analysis of the procedure. Citing the Supreme Court precedent “Bonder Aaron” (Decisions: 336:2184), the Chamber noted that the assessment of a reasonable time frame encompasses both the administrative stage and judicial review, which includes proceedings before the Tax Court.

● Guarantee of a reasonable time frame. Following the “Losicer” precedent (Decisions: 335:1126), it deemed the guarantee under art. 8.1 of the American Convention on Human Rights to have been violated, finding no justification for the delay from the 2009 tax period to the Tax Court's ruling, and up to the present.

● Administrative Procedures Act. It also invoked the right to a reasonable time frame incorporated by Law 27,742 (art. 25) into art. 1 bis, subsection a), item (iv), of Law 19,549, which applies supplementary in tax matters.

● Outcome. It overturned the Tax Court's ruling, declared the Tax Authority's sanctioning and taxing powers in those proceedings extinguished, assessed the costs of both instances against the Tax Authority, and deemed it unnecessary to address the remaining grievances, including the statute of limitations and the substantive issue.

7. Practical scope

● Applies to the tax, not just the fine. The “Losicer” doctrine had developed in the context of sanctions. The ruling extends its effects to the power to assess and demand the tax as well, which constitutes its most novel aspect.

● There is no fixed time frame. Unreasonableness is assessed on a case-by-case basis, depending on the total duration of the proceedings and whether or not there are causes that justify the delay. Not every prolonged dispute leads to the extinction of the tax claim.

● Relevance to transfer pricing. Transfer pricing adjustments often involve complex economic expert reports and lengthy proceedings before the Tax Court, so this criterion may have a special impact on this type of litigation.

● Non-final judgment. The Tax Authority can be expected to appeal to the Supreme Court. For now, this is the position of one Chamber, issued with two of its three judgeships occupied.

8. Final remarks

Both developments reinforce the taxpayer's position vis-à-vis the Tax Authority: the law, by reducing formal fines and clarifying when the five-year statute of limitations applies; the ruling, by placing a time limit on the exercise of taxing powers. We particularly recommend:

● Pending formal fines. Before paying or continuing to contest a formal fine for obligations overdue since January 2, 2026, evaluate opting for the 50% reduction, the regulations for which ARCA must issue in the coming days.

● MSME status. Verify that the MSME certificate is currently valid, as it determines access to both reductions.

● Shortened statute of limitations. Review the crediting of withholdings, collections, advance payments, and prepayments on tax returns, given that their improper crediting now constitutes, in and of itself, grounds for a significant discrepancy.

● Simplified tax return. For partners and directors, analyze the suitability of the simplified regime for the 2025 fiscal period, the filing deadline of which for individuals was extended to October 30, 2026 (General Resolution ARCA 5911/2026).

● Long-standing cases. Survey cases pending before the Tax Court and in judicial proceedings—especially transfer pricing cases—to identify those where the delay may be deemed unreasonable, raise the claim in a timely manner at each instance, reserving the federal question, and document the case record timeline, demonstrating that the delay is not attributable to the taxpayer.