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Andrés Edelstein |
Ignacio Rodríguez |
On March 11 2013, a new double tax treaty was signed between Argentina and Spain replacing the former one, which was terminated in 2012 by the Argentine government. The subsequent exchange of instruments of ratification that it is expected to occur soon will make it retroactively effective as from January 1 2013. In general, the new treaty keeps the wording of the former one terminated last year without including the relief from the Argentine 0.5% wealth tax.
The tax treatment of Argentine transactions under the newly signed tax treaty with regard to (i) interest, (ii) royalties, (iii) dividends and (iv) capital gains would be as follows:
Interest
Domestic Argentinean tax law generally subjects interest payments on related-party loans to a foreign beneficial owner to a 35% withholding tax rate. However, under the tax treaty, interest payments on such loans paid to Spanish beneficiaries should be subject to a maximum withholding tax rate of 12%.
In addition, although the treaty contains non-discrimination provisions they do not override domestic thin capitalisation rules that establish a 2:1 debt-to-equity ratio.
Royalties
Under the tax treaty, royalties and technical assistance payments made to a Spanish beneficial owner should be subject to Argentine income tax withholding at a maximum rate of 15% – lower rates may apply. Note that under domestic Argentine tax law, royalties may be subject to withholding tax rates as high as 31.5%.
The treaty generally follows the OECD model. However there are some deviations from that model, such as listing technical assistance services in Article 12, Royalties.
Dividends
Under the tax treaty, dividends paid by an Argentine company to a Spanish shareholder may be taxed in Argentina at maximum rates of 10% (in case of a shareholding of 25% or more in the distributing company) or 15% of gross dividend amount.
Note, however, that Argentine tax law provides that dividend payments would be subject to a 35% withholding tax rate only to the extent they exceed the accumulated tax earnings.
Capital gains
With regard to the direct sale of Argentine shares or quotas, and provided that less than 50% of the value of those shares stems from real estate property, capital gains effective tax shall not exceed the maximum rates of 10% of the gain in case of a direct shareholding of 25% or more, or 15% in other cases.
Although the Argentine domestic regulations presently provide a full exemption for foreign beneficiaries obtaining capital gains derived from the transfer of Argentine shares (stock), if this exemption were to be repealed the relief provided by the treaty is worth considering.
Finally, it is established that transfers of assets as a consequence of an internal reorganisation shall not trigger tax implications in accordance with legislation of each contracting state.
Expanding network
The new tax treaty will enter into force after instruments of ratification have been exchanged. That is expected to occur soon since it is established that the provisions will be retroactively applicable as from January 1 2013.
This development gives hope that the Argentine authorities are willing to continue expanding the tax treaty network, which had previously remained unchanged since the 2001 treaty with Norway and even narrowed last year with the termination of three treaties. According to official sources, negotiations to conclude new treaties with Switzerland and Austria have also taken place.
Andrés Edelstein (andres.m.edelstein@ar.pwc.com) and Ignacio Rodríguez (ignacio.e.x.rodriguez@us.pwc.com)
PwC
Tel: +54 11 4850 4651
Website: www.pwc.com/ar
