According to the reform enacted through Law number 25,585 (published in the Official Bulletin on May 15 2002) foreign investors are subject to the personal assets tax on their participation in local companies. Decree 988 (published in the Official Bulletin on April 29 2003) clarified many aspects of the new tax.
Reform
In general terms, the personal assets tax is only imposed on assets owned by individuals. However, under a legal presumption it is assumed, without admitting proof to the contrary, that the participation in the capital of local companies whose owners are companies situated abroad indirectly belongs to foreign individuals. In addition, Decree 988 extended the scope of the tax to Argentine branches and permanent establishments of foreign entities.
The new rule provides that the tax applicable on the participation in the capital of local companies shall be assessed and paid directly by the local issuing companies, as a full and final payment (the issuing company will have the right to recover the tax from the shareholders).
The applicable rate is 0.5% on the value of the participation, which is generally calculated on the difference between assets and liabilities arising from the last financial statements on December 31 of each year. In general terms, the tax is due in May of the following year.
Other considerations
Argentina has an extensive tax treaty network, which has been especially expanded during the past few years.
Certain treaties protect residents of a contracting state from the 0.5% personal assets tax. Clear examples of this protection are the treaties signed with Spain and Switzerland.
More recently (April 23 2003) a new protocol to the tax treaty between Argentina and Chile was signed. Under the protocol provisions, Chilean shareholders will not be subject to the 0.5% tax as from the entrance in force of the referred protocol.
Other tax treaties may provide some relief, although a deeper analysis would be required in order to reasonably construe the non-applicability of the tax.
Finally, it should be mentioned that residents of certain other non-tax treaty countries would be excluded from the application of the tax according to a recent interpretation issued by the National Tax Office. This opinion is based on the extension to the tax area of the "most favoured nation" principle recognized by the Treaty of Montevideo 1980. This treaty created the Asociación Latinoamerica de Integración (ALADI). The treaty was signed by Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay and Venezuela.
Gabriela Rapa (gabriela.rapa@ar.pwc.com) and Andrés Edelstein (andres.m.edelstein@ar.pwc.com), Buenos Aires
