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Nicolás Procopio
Allende & Brea, Buenos Aires
nprocopio@allende.com

 

Executive summary

On the change of office in December 2019, the new Argentine Government (the 'Government') presented a bill (which Congress passed as Law No 27,541) declaring a state of emergency in a number of areas, including the fiscal, financial and social security systems, while also introducing a number of relevant modifications to the Argentine tax system in order to attend to this state of emergency.

Among the most relevant modifications, Law No 27,541: (1) levied a new tax on access to the foreign exchange market; (2) abrogated taxation on certain financial transactions; and (3) introduced relevant amendments to the Income Tax Law and Personal Assets Tax Law.

In addition, the Argentine Tax Authority (Administración Federal de Ingresos Públicos or AFIP) recently created a Foreign Passive Entities Registry applicable to Argentine taxpayers holding ownership or management positions in certain foreign entities.

Most recently, and after the current worldwide Covid-19 pandemic, the Government implemented a relief programme to address the economic consequences, including a set of measures and benefits directly applicable to Argentine employers. In addition, the Government announced that it is currently analysing the creation of new taxes directly applicable to high-net-worth individuals in order to mitigate the economic, fiscal and social consequences arising from the Covid-19 situation.

Law No 27,541 and Regulatory Decree No 99/2019

On 23 December 2019, the Argentine Congress passed Law No 27,541, declaring a state of emergency on economic, financial, fiscal, administrative, social security, tariff, energy, health and social matters, while delegating a number of legislative powers to the Argentine Executive under the terms and conditions therein. This included a number of relevant amendments to the Argentine Tax System (the 'Emergency Law').

A week later, the Argentine Executive issued Regulatory Decree No 99/2019, providing clarifications and additional regulations to the Emergency Law. Below is a list of some of the most relevant tax amendments introduced by the Emergency Law and Regulatory Decree No 99/2019.

Tax on Access to the Argentine Foreign Exchange Market ('PAIS Tax')

The Emergency Law levies the Impuesto para una Argentina Inclusiva y Solidaria ('PAIS Tax') on four taxable events applicable for Argentine residents and legal entities for five fiscal periods as described: (1) purchase of banknotes and foreign currency, including travellers' cheques, by Argentine residents for treasuring or without a specific destination linked to the payment of obligations in the exchange market; (2) exchange of foreign currency made by financial institutions on behalf of and at the request of the purchaser/renter or borrower for the payment of the acquisition of goods or services and the rental of services made abroad, which is cancelled by means of the use of credit, purchase and debit cards, and any other equivalent means of payment, including those related to cash withdrawals or advances made abroad; (3) exchange of foreign currency made by financial institutions for payment, on behalf and order of the contracting party resident in the country of services rendered by non-residents in the country, which is cancelled through the use of credit, purchase and debit cards, and any other equivalent means of payment; and (4) acquisition of services abroad contracted through travel and tourism agencies – wholesalers and/or retailers – in the country, or the acquisition of land, aerial and aquatic transportation services with a destination outside Argentina whenever it is necessary to access the foreign exchange market for its payment. The applicable tax rate of PAIS Tax is30 per cent.

Income tax

The Emergency Law provides relevant amendments to the Income Tax Law. The reduction schedule set forth by Law No 27,430 in 2017, which established the reduction of income tax applicable to Argentine corporations from 30 per cent to 25 per cent for fiscal exercises starting from 1 January 2020, was suspended until 1 January 2021, as well as the increase of the withholding tax applicable to the distribution of profits of Argentine corporations from seven per cent to 13 per cent.

A separate schedule created by Law No 27,430 on tax income and capital gains from financial investment is partially abrogated to exclude the following from taxation as from tax year 2020: interest derived from bank deposits in Argentine pesos, government bonds, commercial paper, financial trusts and quotas in mutual funds (in Argentine pesos or United States dollars). However, since such income remains taxable for tax year 2019, a specific exemption for individuals comprising interest derived from domestic currency deposits made to banks (savings accounts, fixed-term deposits etc) has been established. The exemption abrogated by Law No 27,430 on the capital gains of government bonds, commercial paper, debt notes and certificates of participation in financial trusts or quotas in mutual funds has been re-established, provided the respective securities are listed in Argentine bourses.

Finally, the Emergency Law provides the deferral of an adjustment for inflation income and losses. As a result, income or losses arising from the application of the adjustment for the inflation procedure corresponding to the first and second fiscal period beginning as of 1 January 2019 must be proportionally allocated within a six-year period instead of the three-year period provided by previous regulations.

Tax on debits and credits in bank accounts

The Emergency Law amends Article 1 of Law No 25,413, increasing the tax rate from 0.6 per cent to 1.2 per cent in the case of debits on bank accounts resulting from cash withdrawals made by companies.

Personal assets tax

A new progressive tax rate schedule provides that the personal assets tax rates range between 0.5 per cent and 1.25 per cent, depending on the value of the taxpayer's taxable assets. For taxable foreign assets, the applicable progressive tax rate ranges from 0.7 per cent to 2.25 per cent.

However, Decree No 99/2019 determines that taxpayers repatriating up to five per cent of the value of their foreign assets are excluded from paying the higher differential rates. In order to obtain this benefit, repatriation must be made by 31 March^[1] and the assets maintained in Argentine financial institutions by 31 December of any given year.

Foremost, Regulatory Decree No 99/19 includes the concept of financial assets located abroad, which shall be understood to mean the holding of foreign currency deposited in banks and/or financial and/or similar institutions abroad, corporate and/or equivalent holdings (private securities, shares, quotas and other holdings) in all types of entities, companies or enterprises, with or without legal personality, incorporated, domiciled, established or located abroad, including sole proprietorships (sociedades unipersonales); rights inherent in the character of the beneficiary, trustee final beneficiary (or similar) of trusts (trusts or similar) of any type constituted abroad, or in private interest foundations abroad or in any other type of assets of similar effect situated, established, domiciled and/or constituted abroad; all kinds of financial instruments or securities, such as bonds, negotiable obligations, representative securities and share deposit certificates, shares in mutual funds and other similar securities, whatever their denomination; and credits and all kinds of foreign law susceptible to economic value and any other kind provided for in the regulations, and may also specify the substitute persons responsible in those cases where evasive or elusive manoeuvres are detected.

Finally, the Emergency Law included a change of criterion regarding the 'domicile' criteria, adopting the 'residency' criteria as established under the Income Tax Law.

Export duties

The Emergency Law sets the terms and conditions under which the Argentine Executive can set export tax rates to 31 December 2021. These new tax rates shall not exceed 33 per cent. However, the maximum export duty tax rates for certain goods are capped as follows: (1) soybeans, 33 per cent; (2) goods not taxed with export duties or taxed at a zero per cent rate, 15 per cent; (3) agricultural products from local regions, five per cent; (4) industrial goods, five per cent; (5) services, five per cent, and (vi) hydrocarbon and mining goods, eight per cent.

The Emergency Law also increased the statistical tax rate applicable for the import of goods for consumption, from a 2.5 per cent ad valorem to a three per cent ad valorem rate until 31 December 2020.

Social security contributions

The schedule to unify social security contributions to 19.5 per cent was suspended. Thus, employers' contributions are set at a rate of: (1) 20.4 per cent for private sector employers whose main activities are related to services or trade, provided that their total annual sales exceed certain thresholds; and (2) 18 per cent for the remaining private sector employers.

Foreign Passive Entities Registry

On 15 April 2020, AFIP's General Resolution No 4697/2020 was published in the Official Gazette, creating a beneficial ownership registry called the 'Foreign Passive Entities Registry'.

In this regard, taxpayers holding more than 50 per cent of the shares or participation in capital, directors, managers, attorneys-in-fact, members of inspection bodies and those who hold similar positions in companies, except trusts or foundations or any other foreign entity that obtains a passive income exceeding 50 per cent of its gross income during the calendar year, shall be obliged to inform the registry of the data identifying the foreign passive entity and its legal connection with it.

Likewise, the new resolution establishes that the ownership reporting requirement will be deemed met, regardless of the percentage of participation, when Argentine residents, with respect to foreign entities, comply with any of the following requirements:

• have the right to dispose of the assets of the entity;

• have the right to appoint the majority of directors or administrators and/or are members of the Board of Directors and their votes define the decisions to be taken;

• have the right to remove the majority of directors; or

• have a right over the benefits of the entity.

The participation requirements shall be met when the individual reaches 50 per cent of the shares or interest jointly, directly, or indirectly by itself or constructively by its family members. Regarding the passive income requirement, any given income shall be deemed as passive when arising from dividends, royalties, interest, rents and others (as set forth by section 292 of the Income Tax Law Regulatory Decree No 862/19).

High-net-worth tax (bill)

As mentioned before, in order to tackle the fiscal and financial necessities created by the Covid-19 pandemic, the Government has announced that it is analysing the creation of a new tax applicable to high-net-worth individuals. It is worth mentioning that the definitive bill has not yet been published as of the date of this article, and there are four bills that provide the creation of one or more emergency taxes alleging the need to increase tax revenue.

The bill that is most likely to be considered by Congress would contemplate the creation of a one-off levy for individuals who declared assets for an amount equalling or surpassing ARS 200m (approximately $3,140,000) as from 31 December 2019. The tax shall be applicable over local and foreign assets held by the taxpayer as from 31 March 2020 at an applicable tax rate of two per cent, 2.50 per cent or 3.50 per cent. Non-Argentine residents shall be taxed over the assets located within the country.

Nevertheless, please note that the amounts and rates mentioned above may be modified once the definitive bill is duly considered and discussed at the Argentine Congress.

Labour and Production Emergency Assistance Programme

On 1 April 2020, Decree No 332/2020 as amended by Decree Nos 347/2020 and 376/2020 was published in the Official Gazette, creating the 'Labour and Production Emergency Programme' (the 'Programme'). The employers included in these benefits are those who comply with one or more of the following requirements: (1) economic activities that are critically affected by geographical areas where they are developed; (2) significant number of employees infected with Covid-19; and/or (3) significant reduction of their income as from 20 March 2020. In short, the Programme provides four main benefits applicable to Argentine employers:

1. postponement of the deadline to pay employers' contributions to the Argentine Social Security System or up to 95 per cent reduction on employers' contributions to the Argentine Social Security System accrued during April 2020;

2. compensatory allowance for companies with up to 100 employees included in the Collective Bargaining Regime. This payment will consist of an amount paid by the National Social Security Administration (Administración Nacional de la Seguridad Social or ANSES) of up to 100 per cent of the employees' gross salary;

3. credits with no interest rate (crédito a tasa cero) for certain Argentine individuals; and

4. non-contributory allowances creating an Unemployment Fund for employees that comply with requirements under Law Nos 24,013 and 25,371.

The Program also created the 'Evaluation and Monitoring Committee of the Emergency Programme' (the 'Committee'), with authority to assess relevant facts regarding the operability and applicability of the Programme. Since the establishment of the Programme, the Committee has issued several recommendations with regard to the application of each benefit in particular, even creating new requirements not foreseen in the original regulations. Among its recommendations, the Committee has recommended that AFIP enables the corresponding instruments to companies to access the benefits and evaluates, within its legal framework, whether each employee is duly complying with the requirements set forth by the Programme.

Following the Committee's recommendations and as set out in Administrative Decision No 817/2020, certain consequences were established for companies that requested the compensatory allowance (as defined in (2) above). In this regard, companies receiving such a benefit: (1) will not be able to pay out dividends for fiscal years closed as of November 2019; (2) will not be able to repurchase their shares directly or indirectly; (3) may not acquire securities in Argentine pesos for their subsequent and immediate sale in foreign currency or their transfer in custody abroad (commonly known as contado con liquidación); and (4) may not make expenditure or payments of any kind to persons or entities directly or indirectly related to beneficiaries whose residence, establishment or domicile is in a non-cooperative jurisdiction or with low taxation regimes. Thus, it was provided that the assisted companies shall comply with the aforementioned provisions during the current fiscal year, and until the 12th month following the end of the fiscal year subsequent to that in which the benefit was granted (ie, if the current fiscal year closes on 31 December 2020, the provisions will apply until 31 December 2022). Under no circumstances may the company's net equity be reduced for the reasons previously described until the end of the indicated period.

Compliance with the requirements referred to above are conditions of forfeiture; failure to comply will result in the forfeiture of the agreed benefits and the consequent obligation of the beneficiary to reimburse the Government. Finally, it is important to mention that tax secrecy is waived for companies requesting access to any of the benefits set forth in the Programme; hence, it is possible that the adhering taxpayers' data is shared by the Argentine Tax Authority with other government agencies.

 

Note

 

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