Argentina: Argentina creates a tax on capital gains and dividends
Andrés Edelstein and Ignacio Rodríguez, PwC
The Argentine Parliament has approved the draft Bill sent by the Executive Branch that creates a 15% tax on capital gains arising from the transfer of unlisted stock and quotas. The Bill also includes a 10% tax on dividend distributions.
The same Bill repeals the current exemption available for foreign beneficiaries on income derived from Argentine share transfers. Thus, foreign beneficiaries would become subject to a 13.5% effective income tax withholding rate on gross proceeds or, alternatively, to a 15% income tax on the actual capital gain if the seller's tax cost basis can be duly documented for Argentine tax purposes.
Both Income Tax Law amendments seek to mitigate an expected decrease in tax revenues because of an announced income tax cut for workers.
In detail, the most relevant proposed measures include:
Gains derived from the transfer of shares (including quotas in an Argentine Sociedad de Responsabilidad Limitada), bonds and other securities other than public bonds and corporate bonds placed by IPO (Obligaciones Negociables or ONs) would be subject to an income tax of 15% regardless of the beneficiary's nature and residence. The new law would include an exemption for assets transferred on listed Argentine stock exchanges, but the exemption would be available only to Argentine individuals and undivided estates. The abovementioned capital gains derived from the transfer of public bonds and ONs would remain exempt based on provisions of Law 23,576.
Regarding non-resident taxpayers, the Bill would repeal the capital gains tax exemption established by Section 78 of Decree No. 2,284/1991 (covering gains derived from the transfer of shares, bonds and other securities). Based on the above, transfer of Argentine stock by non-residents would become subject to tax. The tax would be calculated by applying the 15% rate to a gross presumed margin of 90% (the effective tax would then equal 13.5% of the transfer value) or 15% on the actual gain. The new law does not cover indirect transfers that would remain out of the Argentine income tax law's scope. Although the newly enacted law does not establish a procedure for transfers involving two non-resident parties it states that the transferee is liable to pay the tax that applies to the transferor. Therefore, we expect additional regulations will provide further guidance in this regard.
Argentine entities' dividend distributions would be subject to a 10% income tax. Under certain circumstances, the new 10% income could apply simultaneously with the Argentine equalisation tax (the existing 35% withholding on distributions that exceed the accumulated tax earnings of the Argentine entity making the distribution). In principle, foreign beneficiaries would pay this tax through an income tax withholding mechanism to be applied by the distributing company. Further regulations may be expected in this regard as well.
The new law applies to taxable events occurring after its publication in the Official Gazette. Unfortunately it does not envision any exception in case of intra-group restructuring / transactions that would remain subject to the new capital gains tax.
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