Is Severance Pay Taxable in Argentina? The De Lorenzo Ruling
In De Lorenzo, Emilia v. DGI (Dirección General Impositiva, the federal tax authority), Argentina's Supreme Court (CSJN) confirmed that severance payments and termination bonuses cannot be taxed as income, because they lack the periodicity and permanence of source that Argentine tax law requires for a payment to count as taxable "ganancia" (income).
1. Why the Court Said Severance Isn't Income
The Court reasoned that a severance payment is not a gain or recurring income at all — it is patrimonial reparation for the loss of the very source that generated the worker's income: the job itself. Taxing that indemnifying capital as if it were ordinary salary, the Court held, would undermine the constitutional guarantee against arbitrary dismissal in Article 14 bis of the Constitución Nacional. Ordinary wages are periodic and tied to an ongoing employment relationship; a termination payment, by contrast, is a one-time payment that compensates for the relationship ending — the opposite of the "periodicity and permanence" test the Impuesto a las Ganancias (income tax) law uses to define taxable income.
2. Which Termination Payments Are Exempt from Income Tax
Following De Lorenzo, the following items paid on termination of employment are exempt from Impuesto a las Ganancias withholding:
- Seniority severance indemnity (Art. 245 LCT).
- Pay in lieu of notice and integration of the dismissal month.
- Aggravated indemnities for dismissals linked to pregnancy, marriage, or union activity.
- Termination bonuses ("gratificaciones por cese") paid under conciliation agreements reached at SECLO.
Legal Exemption vs. What Your Pay Stub Shows
De Lorenzo settles the legal principle — it does not automatically stop a payroll department from withholding Impuesto a las Ganancias on an exempt item by mistake or by an overly cautious policy. When that happens, the withholding can be challenged and the amount reclaimed.
3. Why It Matters for a Worker Today
Every peso withheld from an exempt severance payment is a peso the worker should have received in full. Employers and payroll providers do not always apply De Lorenzo correctly, especially on the seniority indemnity under Article 245 LCT or on a negotiated SECLO conciliation settlement. Before accepting a final settlement or a liquidación that shows an income tax deduction on any of the items above, a worker should have the calculation reviewed — the deduction is very often not owed at all. If a dispute over unpaid or wrongly withheld severance escalates, sending a free labor telegram is typically the first formal step before a claim.
De Lorenzo remains, together with the doctrine on the seniority indemnity itself, one of the two pillars a worker needs to understand what a full and correct severance payment in Argentina actually looks like: calculated in full under Article 245 LCT, and paid without an income tax deduction on the indemnifying portion.