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Argentina terminates tax treaty with Chile and Spain

The Argentine government has terminated its tax treaties with Chile and Spain. These treaty terminations are significant and may impact existing cross-border structures and/or planning by multinationals with operations or investments in Argentina involving Chile or Spain.

Andrés Edelstein
Ignacio Rodríguez
The unilateral decision to terminate the treaties with Chile and Spain was recommended by an ad-hoc commission created in 2011 by the Argentine tax authorities to review Argentina's double tax treaties for potential tax abuse.

The Argentine government formally notified the Chilean and Spanish authorities of the treaty terminations on June 29 2012. Both notifications have been published in Argentina's official gazette.

Some of the key issues following each treaty termination are summarised below.

Argentina-Chile treaty

The treaty with Chile was signed in 1976 and entered into force in 1985. Its provisions did not follow the OECD Model Tax Treaty, but rather granted taxation rights on a source basis, with a full exemption mechanism in the other (non-source) contracting state.

Consequences of the termination

The treaty's revocation may significantly impact multinationals that relied on certain favourable provisions for structuring their business in Latin America, particularly for the taxation of dividends and capital gains (which were only subject to tax in the source country). Additionally, payments of technical assistance and/or advisory services rendered outside of Argentina would remain subject to domestic withholding rates up to 31.5% from an Argentine perspective.

Based on its article 26, the treaty may be terminated from January 1 to June 30 of any calendar year by written notice. By following this procedure the treaty is no longer effective for companies with respect to earnings, income, profits, or capital relating to the tax or accounting periods commencing after the date on which such notification was given.

Note that a 2003 protocol to the Argentina-Chile tax treaty provided a full exemption from the Argentine Wealth Tax, which is an indirect tax imposed on Argentine company shareholders and annually assessed at 0.5%of the Argentine company's net book value. As a result of the treaty termination, wealth tax relief is no longer available with Chile.

Argentina-Spain treaty

The treaty with Spain generally followed the OECD model, with some modifications, and, for example, partially limited taxation rights at the source on royalty, dividend and interest payments, as well as capital gains.

Consequences of the termination

As a result of the treaty's termination, Argentine income tax withholding on royalty and technical assistance payments to Spanish residents may now be subject to rates as high as 31.5%. Furthermore, withholding tax on cross-border interest payments may be as high as 35% (versus the treaty's significantly lower rates).

Additionally, the treaty's non-discrimination provisions allowed taxpayers to mitigate certain restrictions established by Argentine Income Tax Law that limit deductions for trademark and patent royalty charges when paid abroad. This feature was significant. Similar to the tax treaty with Chile, the Argentina-Spain treaty provided full relief from the Argentine wealth tax. As a result of this termination, wealth tax relief is no longer available.

In accordance with the treaty's termination clause, the treaty should be considered terminated effective January 1 2013.
Notwithstanding Argentina's unilateral decision to terminate the treaties' application, it remains to be seen whether the authorities of both contracting states will seek to negotiate a respective new treaty wording.

Andrés Edelstein ( and Ignacio Rodríguez (
Tel: +54 11 4850 4651

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