ARGENTINA - Tax reform developments
On 27 December 2018 Decree N°1170 in relation to tax reform was published in the Official Gazette, following amendments made by Law N° 27.430 in December 2017.
It is important to note that since then, numerous and significant details and clarifications have been announced in relation to the application of that reform, introducing new definitions.
It is also important to mention that during 2018 the Executive Power, through the issue of Decrees N°279/2018 and 976/2018, regulated certain modifications relating to the application of Income Tax on financial income obtained by foreign entities, the transfer of real estate and the transfer of rights over it by local individuals and undivided estates, as well as compensation relating to the termination of the work relationship for those who work in executive or managerial positions in companies.
We summarise below some issues of local and international interest in relation to these matters.
Indirect disposal of assets
With regard to the reform introduced in the Law, it was established that, under certain circumstances, there is an Argentine source in the indirect transfer of assets (for example, the indirect transfer of an Argentine equity interest). However, the aforementioned provision establishes that transfers made within the same economic group are excluded.
In view of this, the regulation establishes that this should be verified and, therefore, the abovementioned legal presumption shall not apply when:
- The transferors of the shares have a joint interest, directly or indirectly, in 80% or more of the share capital of the acquirer, or vice versa; or
- One or more entities have a joint interest, directly or indirectly, in 80% or more of the share capital of both the transferor and the acquirer.
There are regulations related to cases of linkage, new methods for determining the price of transactions, and the creation of “preference rules” for choosing the most appropriate method depending on the type of transaction to be evaluated, among others.
Jurisdictions of low or no taxation and non-cooperative jurisdictions
The Decree specifies the scope of the term ‘jurisdictions qualified as low or no taxation’, noting that in order to frame them as such, the total corporate income tax rate has to be considered, regardless of the level of government that had established it. It is important to highlight that the aforementioned qualification will apply when jurisdictions establish a tax rate below 15%.
Likewise, for the purposes of qualifying as "non-cooperating jurisdictions", the regulation specifies that agreements and treaties comply with the "international standards of transparency and exchange of information in tax matters" when the parties agree to use the authority they have to collect the information requested without the possibility of refusing to do so, in the case that the information is in possession of a third party (financial institution, agent or trustee, among others) or that the information is related to the ownership interest of a non-resident in the country.
Clarifications and definitions have been established to define the scope of the term "permanent establishment" (PE). It is clarified that a foreign entity that has one or more PEs in the country must allocate the corresponding profits to each of them based on the activities developed, the assets involved and the risks assumed.
In turn, income obtained by the foreign entity that is not attributable to a PE owned in the country will be subject to the withholding regime - in the form of a single and definitive payment - provided for those who have the status of "foreign entities".
Certain exemptions will be applicable to foreign entities that reside in jurisdictions that are not considered "non-cooperating".
In turn, the regulation specifies that, when foreign entities reside in jurisdictions that are not considered "non-cooperating", the legal exemption will only be applicable if, additionally, the funds invested do not come from jurisdictions that are considered "non-cooperative".
Foreign Source Income Allocation
Following the standards of "international fiscal transparency”, guidance has been provided in determining when it is appropriate to allocate the profits of certain foreign entities. In all cases, the results to be allocated will be "accrued" in the fiscal year of the foreign entity.
Information to be provided regarding Foreign Companies
Shareholders, partners, owners, controlling shareholders or beneficiaries in the country who hold direct or indirect interest in entities, contracts, arrangements or similar structures abroad must disclose specific information regarding foreign entities when preparing the income tax return.
Calculation of similar taxes abroad
Shareholders, owners, controlling shareholders or beneficiaries in the country of a trust, private interest foundation or similar structures located abroad, may compute the credit for similar national taxes actually paid in the countries in which profits are obtained, including those paid by the latter, either directly or indirectly as a result of their investment in other foreign entities, only when certain requirements are jointly met.
Guillermo Jaime Poch
Alberto Fabián Mastandrea