Argentina: Government changes black-list approach to tax havens
On May 30 2013, the Argentine government issued Decree 589/2013 that eliminates the list of no-or-low tax jurisdictions included in the income tax regulations, the so-called black-list. The decree empowers the federal tax authorities to establish a new white dynamic list which will only include the countries, jurisdictions, territories and tax regimes that will be considered as cooperatives for fiscal transparency purposes, namely those that have signed double tax treaties or tax information exchange agreements with Argentina, to the extent that the exchange of information has been effective.
In 2000, Argentine income tax regulations introduced a black-list of countries, consisting of jurisdictions considered to have no-or-low tax regimes. Transactions with those countries are deemed as not being performed on an arm's-length basis for transfer pricing purposes and thus, are subject to annual analysis and support in light of these regulations.
In accordance with Decree 589/2013, any reference made in tax law and regulations to tax havens now refers to jurisdictions that do not qualify as effective co-operators according to the tax authorities' definition.
Moreover, a jurisdiction will no longer be characterised as cooperative if a treaty or a tax information exchange agreement (TIEA) is terminated, and/or the exchange of information is not effectively accomplished.
Although the jurisdictions that have double tax treaties and TIEAs in force with Argentina will initially be considered as cooperative, those that have initiated negotiations to sign a TIEA or a double tax treaty with a broad clause for the exchange of information may also be considered as such.
For these purposes, the treaties have to comply, to the furthest extent possible, with the international standards adopted by the OECD's Global Forum on Transparency and Exchange of Information for Tax Purposes, establishing that no internal rules can be invoked to allege banking, trading or any other secrecy whenever Argentina requests information.
As well as affecting the transfer pricing regulations, the changes introduced by Decree 589/2013 have a significant effect on other regulations. Indeed, Argentina's controlled foreign corporation rules are tied to this list.
It has to be considered at the time of defining, for instance:
Whether foreign source passive income has to be reported by local taxpayers for income tax purposes on an accrual or cash basis;
Whether taxes effectively paid abroad by second-tier subsidiaries are available to be computed as foreign tax credits; or
Whether foreign dividends distributed by an intermediate holding company that, in turn, owns an Argentine subsidiary have to be included or not in the income tax basis.
Also, amounts charged by those black-listed (now non-cooperative) jurisdictions involving Argentine source income are only deductible for the local taxpayer when they are paid.
Moreover, interest paid stemming from loans granted by foreign banking or financial entities is subject to an effective withholding income tax of 15.05%.
To achieve such a reduced rate the law requires, among other things, that these entities are not located in a no-or-low tax jurisdiction or that they are located in jurisdictions that have signed a TIEA with Argentina. Otherwise, interest paid abroad is subject to a 35% effective withholding income tax rate.
Also, in 2003, Argentina amended the tax procedural law to include a provision that, unless there is proof to the contrary, considers that funds transferred from tax havens or black-listed jurisdictions have to be treated as unreported income for income tax, valued added tax and excise tax purposes.
Decree 589/2013 rules will become applicable from the date on which the tax authorities release the new list of jurisdictions considered to be cooperatives for fiscal transparency purposes. This new list is not yet available.
Foreign investors doing business in Argentina should closely monitor the issuance of the new list by the Argentine tax authorities and its subsequent updates, as changes are likely to take place in relation to the now withdrawn black-list.
Also, it remains to be seen how this new approach is implemented with respect to certain practical matters such as whether the cooperative condition has to be met when a given agreement is signed, when the transaction is performed and/or when the payment is made, or when a jurisdiction ceases to be considered cooperative, and it is removed from the list when this change is effectively applicable, considering that income tax is an annual tax.
Lastly, this new approach will clearly affect certain existing structures as well as future planning for multinationals involving Argentina, as companies may have to consider situations in which a given jurisdiction may come to be considered as non-cooperative.
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