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Argentina updates its global tax treaties with key economies

In early December 2018, Argentina signed two new double tax treaties (DTTs) with China and Turkey. In January 2019, Congress passed Law No. 27,496, which approved the DTT signed between Argentina and the United Arab Emirates (UAE) in November 2016.

This shows how Argentina has been actively negotiating DTTs to expand its treaty network.

New treaties with partners in the Middle East and Asia (including negotiations with Israel, Singapore and Japan) show a trend to broaden the treaty network that has traditionally focused on European countries and other strategic economies like China.

Treaty developments should be monitored by multinational groups, as well as how the multilateral instrument (MLI) is affecting existing bilateral treaties.

Below are the main features of each of those new agreements.

Tax treaty with China

On December 1 2018, representatives of the governments of Argentina and China signed the first bilateral DTT. In order for the treaty to be enforceable, internal approvals and ratification is still required.

Like other OECD model-based treaties, this one introduces relief on domestic withholding taxes (WHT) on cross-border payments for:

  1. Interest (12%),
  2. Royalties and technical assistance services (3%, 5%, 7% and 10%); and
  3. Dividends (10% provided the interest held is greater than 25% and it has been held for the 365-day period before the dividend payment).

Taxation on capital gains derived from the transfer of shares is capped at 10% or 15%, depending on the participation held.

With respect to the permanent establishment (PE) definition, exceptions included in Article 5 are subject to the 'preparatory or auxiliary' condition. Finally, the treaty includes the principal purpose test as a general anti-abuse provision.

Tax treaty with Turkey

On December 2 2018, Argentina signed a DTT with Turkey, which is also the first one between the two countries.

The treaty has similar features to those described for the treaty with China, most importantly a limitation on domestic WHT for:

  1. Interest (12%);
  2. Royalties and technical assistance services (3%, 5% and 10%); and
  3. Dividends (10% provided the interest held is greater than 25% and it has been held for the 365-day period before the dividend payment).

Like the treaty with China, Argentina and Turkey have agreed to include the principal purpose test as a general anti-abuse provision.

Congressional approval and ratification would be needed before the treaty becomes applicable.

Tax treaty with Qatar

In April 2018, Argentina signed a DTT with Qatar, which in general terms includes features similar to those of the treaties with China and Turkey, particularly with respect to limitation on withholding taxes at source, a definition of PEs, and general anti-abuse provisions (i.e. the principal purpose test).

A distinctive feature is that WHT on royalty payments is capped in all cases to a 10% rate.

The treaty has already been ratified by the Qatar government, although Argentine congressional approval is still pending.

Tax treaty with the United Arab Emirates

Through Law No. 27,496, published in the Official Gazette on January 4 2019, Argentina's Congress approved the DTT signed with the UAE on November 3 2016.

This approval, and subsequent notification to the UAE government (the UAE have already approved the treaty in 2017), saw the agreement enforced from January 4 2019, with general effects for payments made on or after January 1 2020.

Among the relevant provisions of the treaty, there is a reduced WHT on interest payments (12%), royalties (10%), and dividends (10%, provided the interest held is greater than 25%).

In the case of capital gains tax on the disposal of shares, the reduced treaty rate is established to 10% or 15%, depending on whether the seller holds a participation in the capital of the entity larger than 25% of its capital or not.

This rate is further reduced to 5% in case of listed shares and when the seller is the government of one of the contracting states.

Finally, the countries elected the limitation of benefits clause as a general anti-abuse provision under the treaty.

Tax treaty with Brazil

On January 1 2019, provisions for the amendment protocol of the Argentina-Brazil DTT entered into force.

The amending protocol was signed in July 2017 and introduced significant changes to the original treaty and protocol signed in 1980, most importantly on the limitation of WHTs at the source, and the mechanism to avoid double taxation.

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