The Argentine Congress passed the proposed tax reform on
December 27 2017 and it became effective on January 1 2018.
Some changes introduced are important, including an immediate
transitional reduction in the corporate income tax (CIT) rate
from 35% to 30% for the two taxable years beginning on or after
January 1 2018. For taxable years beginning on or after January
1 2020, the CIT rate will decrease again, to 25%.
The two-step corporate tax rate reduction is offset by a new
withholding tax on dividend/profit distributions at a rate of
7% (while the applicable CIT rate is at 30%) and 13% (when the
corporate rate lowers to 25%). Thus, in the absence of a tax
treaty, the combined effective rate on dividend/profit
distributions would be set at 34.9%. It will decrease to 34.75%
when the 25% CIT rate is in place.
The tax reform also has abolished the so-called equalisation
tax for profits generated in taxable years starting on or after
January 1 2018. The equalisation tax was a withholding tax
levied at a rate of 35% on dividend distributions in excess of
tax earnings, which still applies to dividend and branch profit
distributions made out of earnings accumulated before January 1
2018 that exceeded tax earnings as of the year-end before the
Transfers of Argentine shares
The tax reform confirmed that the transfer of Argentine
securities that occurred after September 23 2013, including
transfers of Argentine shares made between non-residents, is
subject to tax. The tax, however, does not apply to the sale of
shares and American or global depositary receipts (ADRs or
GDRs) made by non-residents through stock exchanges, whether
local or foreign.
Before the tax reform, the rules required the buyer to
withhold tax on the capital gain. However, in practice, taxes
were not withheld on sales between non-residents because there
was no legal mechanism to do so. In July 2017, the Argentine
tax authorities issued Resolution No. 4094-E, establishing the
mechanism for paying the capital gains tax due by non-residents
for those transactions that occurred on or after September 23
2013. Because of the turmoil this resolution caused, the tax
authorities later published Resolution No. 4095-E, suspending
the previous resolution for 180 days. On January 11 2018,
Resolution No. 4190-E was issued repealing Resolutions Nos.
4094-E and 4095-E.
The tax reform now provides that the seller, and not the
buyer, should be the party responsible for withholding the tax.
As such, Resolution No. 4190-E provides that the tax
authorities will issue a new mechanism regulating how
non-resident sellers should pay the tax on the capital gain for
transactions that take place on or after January 1 2018 and how
non-resident buyers should comply with their withholding tax
obligations with respect to taxable transactions that occurred
between September 2013 and December 2017.
Non-residents are now exempt from tax on capital gains
realised from the sale of shares in publicly traded companies,
but only to the extent that the shares are sold through the
local stock exchange. Furthermore, non-residents continue to be
exempt from tax on capital gains from the sale of sovereign
bonds and corporate bonds issued in an IPO. The yields from
those bonds are also exempt from Argentine tax. In all cases,
the exemption is conditioned on the foreign seller being a
resident in a jurisdiction that has an exchange of information
agreement with Argentina and that the funds come from these
jurisdictions. Only yields and capital gains derived from
specific securities issued by the Argentine Central Bank
(LEBACs) do not benefit from this exemption and are subject to
a 5% tax. If, for capital gains derived from their sale the tax
cost cannot be determined, the tax can be levied at a rate of
4.5% over the sales proceeds.
Indirect transfers of Argentine assets (including shares)
are now taxable under the tax reform, provided that (i) the
value of the Argentine assets exceed 30% of the transaction's
overall value and (ii) the equity interest sold in the foreign
entity exceeds 10%. The tax is due if any of these thresholds
were met during the 12-month period before the sale. The
indirect transfer of Argentine assets, however, is only subject
to tax to the extent those assets are acquired on or after
January 1 2018 and the transaction does not take place within
the same economic group, provided the requirements to be set by
regulations are met.
Other income tax changes
- In line with the OECD Model Tax
Convention, the concept of 'ancillary or preparatory' limits
the scope of the activities that are excluded from being
deemed to constitute a permanent establishment.
- The 2:1 debt-to-equity thin capitalisation
rule is replaced with the BEPS-based rule. The deduction on
interest expense and foreign exchange losses with local and
foreign related parties is now limited to 30% of the
taxpayer's taxable income before interest, foreign exchange
losses, and depreciation. The taxpayer is entitled to carry
forward excess non-deductible interest for five years and
unutilised deduction capacity for three years.
- Amendments have been introduced to relax
the so-called sixth method for transfer pricing analysis in
cases involving commodity transactions with foreign
- Argentine CFC rules have been amended.
Thus, an Argentine taxpayer is immediately taxed on the
passive income generated by a CFC that is directly or
indirectly held to the extent that more than 50% of that
CFC's income is passive and is effectively subject to a tax
that is lower than 75% of the applicable Argentine income tax
- The tax reform subjects individuals to tax
on both the sale and yields of sovereign bonds and corporate
bonds issued in an IPO. The tax, however, is levied at a rate
of 5% if the bonds are issued in Argentine currency and 15%
if they are issued in foreign currency. Before the tax
reform, individuals were exempt from tax on this type of
- The tax reform also confirms that
ADRs/GDRs generate Argentine-sourced income. However, a
non-resident is exempt from the prevailing 15% capital gains
tax on their sale if they reside in a jurisdiction that has
an exchange of information agreement with Argentina and the
underlying shares are also publicly traded in Argentina.
Other tax changes
- With respect to VAT, the tax reform
provides for an expedient recovery mechanism for VAT credit
balances on certain infrastructure and investments in capital
goods, to the extent that companies have not been able to
recover the VAT within six months. The VAT legislation has
also been amended to include 'digital transactions' (such as
digital services, hosting, on-line technical support,
software services, and internet services) as taxable events.
As a result, this type of service is now subject to VAT at a
rate of 21% if it is supplied by a non-resident entity to an
Argentine customer, provided that that the services are
effectively used in Argentina.
- The tax reform also updates the minimum
thresholds to characterise a tax omission as tax fraud and
introduces other amendments to the Tax Procedure Act,
including some provisions on mutual agreement procedures
(MAPs) and advanced pricing agreements (APAs).
- Argentine employers are also exempt from
paying social security contributions for the first ARS 12,000
($600) per month per employee. The change will be implemented
gradually over a five-year period (from ARS 2,400 in 2018 to
ARS 12,000 in 2022 and thereafter).
- Negotiations with the provinces are
expected to reduce provincial taxes, such as the turnover tax
and the stamp tax.
- Finally, the tax reform also includes the
one-time tax aimed at offsetting the absence of inflation
adjustment rules with an optional revaluation of assets as
initially drafted – see our contribution to the
December-January issue. Going forward, for newly acquired
assets as well as those whose bases have been adjusted,
taxpayers are entitled to recover their lost value by
adjusting the tax basis for inflation, because inflation
adjustments have been reinstated for those assets. Taxpayers
opting to revalue their assets must withdraw judicial or
administrative proceedings that claim inflation adjustments
for past or future taxable years.
Given the wide scope, nature and relevance of these changes,
the Argentine tax reform legislation may substantially affect
the way multinational companies operate and organise their
businesses in Argentina. Therefore, they may need to revisit
their holding structures for their Argentine investments as
well as for existing financing and cash repatriation
Ignacio Rodríguez (email@example.com),
Tel: +54 11 4850 6714