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Andrés Edelstein |
Ignacio Rodríguez |
Ever since the amendment of the Argentine wealth tax law in 2002, foreign investors doing business in Argentina through local companies have been subject to this tax on their holdings as of December 31 each year. This is based on the legal assumption that does not admit proof to the contrary according to which shares and/or participation in the capital of local companies whose owners are companies or other legal entities situated abroad belong indirectly to non-resident individuals or undivided estates. The current rule provides that the tax on the shares or participation in the capital of local companies owned by individuals or undivided estates domiciled in Argentina or abroad, and/or companies and/or any other type of legal person domiciled abroad is assessed and paid directly by the local issuing companies as a full and final payment. The issuing company has the right to recover the tax so paid from the shareholders.
The applicable rate is 0.5% on the equity value of the shares or other interest arising from the last financial statements at December 31 of the year being settled.
Application of tax treaties to get relief from this tax
Double tax treaties with Switzerland and Spain terminated in 2012 by the Argentine government were the only ones – together with the Chilean treaty that was terminated as well – providing clear relief from the Argentine wealth tax. Thus, Argentina has been in principle entitled to impose the tax on shares and other interest in Argentine entities belonging to foreign investors located in jurisdictions other than these three countries.
However, there has been a long-standing controversy as a result of a possible interpretation of the most favoured nation clause contained in article 48 of the treaty signed by the members of ALADI (Asociación Latinoamericana de Integración) in Montevideo, Uruguay. ALADI is an association of 12 Latin American countries, including, among others, Argentina, Brazil, Chile, Mexico and Uruguay.
The relevant clause of the Montevideo Treaty stipulates that the capital investment coming from a member country cannot be subject to any less favourable treatment in another member country than that granted in the latter to the investments coming from a non-member country, such as Spain or Switzerland.
Based on the above, some taxpayers took the position that the wealth tax did not apply to shares in local companies owned by residents of certain ALADI countries (for instance Uruguay). While the tax authorities were of the opposite opinion, the National Tax Bureau, governmental agency dealing with treaties' application, had validated the taxpayers' approach.
In response to this controversial matter, in mid-2006 the General Attorney of the Treasury issued his opinion – aligned with what the External Affairs Ministry timely upheld – stating that the most favoured nation clause of article 48 of the Montevideo Treaty does not grant relief from wealth tax based on the argument that the Treaty was not intended to deal with tax matters.
New case-law supporting the tax authorities approach
In December 2012, the National Chamber of Appeal, Panel V, ruled on this matter at case Losa Ladrillos Olavarria S.A. c/Tax Authorities. The Chamber revoked the decision taken by the Tax Court that had benefited the taxpayer whose shares were owned by a Uruguayan holding company and then opened again the debate on the most-favoured-nation clause inserted in the Montevideo Treaty. If it can be invoked as aimed at affecting tax matters irrespective of whether its extent was not expressly mentioned in that treaty – neither restricting nor broadening it to the tax field.
The termination of the tax treaties granting relief from the wealth tax would put an end to this controversy for fiscal years 2013 and onwards since a non-member country from the ALADI would no longer be most-favoured. However the issue is still open for taxpayers until fiscal year 2012 either for strengthening the position they took or for allowing them to get a tax refund. It remains to be seen what the Supreme Court will finally rule on this matter.
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
