In 1988 Discount Bank acquired the building which had housed the offices of the British firm of Montevideo Waterworks & Company. The decision to make that investment was influenced by the fact that the building had been declared a National Historical Monument and hence had certain tax advantages.
Pursuant to Decree-Law No. 14,960, Historical Monuments are “excluded” upon computing Net Worth Tax. This means that they are not included for calculating taxed assets. The exclusion of such properties from the tax computation also has another effect: unlike “exempt” assets, “excluded assets” do not “absorb liabilities” (i.e., their value is not deducted from the amount of computable liabilities).
The Uruguayan revenue service (DGI) found that the Tax Reform Law, in effect as of July 1, 2007, changed treatment of assets classified as “excluded” for Net Worth Tax purposes. According to the DGI, as of 2007 Discount Bank was required to compute the value of the historical monument it owns, for purposes of calculating deductible liabilities. This eliminated the economic advantage deriving from the tax benefit established by Decree-Law No. 14,960, insofar as the benefit the taxpayer obtains upon deducting from its assets those assets legally excluded from the tax is forfeited upon including them in the calculation of deductible liabilities.
The Administrative Claims Court held that the matter under debate should focus on resolving what rules are applicable to the case, and decided based on the principle that a subsequent general rule cannot derogate a previous special law. The Court ruled in favor of Discount Bank, maintaining that in the specific case of historical monuments the special law (Decree-Law No. 14,960) continues to be applicable and clearly establishes the treatment to be afforded to “excluded” assets.