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Argentina signs new tax treaties with Luxembourg and Japan

Ignacio Rodríguez and Juan Manuel Magadan examine the two double tax treaties Argentina has signed with Luxembourg and Japan, both relating to income tax.

During the first semester of 2019, the Argentinian government signed two income tax treaties with Luxembourg and Japan, which are the first ones of this nature entered into with both jurisdictions.

This shows how Argentina keeps actively negotiating double tax treaties to expand its current treaty network.

New treaty developments should be monitored by multinational groups. How the Multilateral Instrument (MLI), would affect existing bilateral treaties once implemented should also be watched.

Below the main features of each of these new agreements are detailed.

Double tax treaty between Argentina and Luxembourg

On April 13 2019, the Luxembourg and Argentine governments signed a new double tax treaty (DTT), together with an accompanying protocol. This new DTT still needs to go through the ratification process.

This DTT is mostly in line with the OECD post-BEPS 2017 Model Convention, and notably includes the Principal Purpose Test as a general anti-abuse provision.

The treaty introduces relief on withholding tax at source on payments of interest, royalties and technical assistance services, and dividends, among others.

As regards capital gains taxation, the treaty may provide full relief in Argentina in case of an indirect transfer of Argentine shares (except in the event of a land-rich entity).

With respect to the elimination of double taxation, Argentina adopted the credit mechanism, while in Luxembourg the exemption with progression method is applicable.

Double tax treaty between Argentina and Japan

On June 27 2019, in the City of Osaka, the authorities of Argentina and Japan signed the first DTT between these two countries.

In order for it to be enforceable, internal approvals and a subsequent exchange of ratification documents are still needed.

Like the treaty with Luxembourg, the DTT with Japan generally follows the OECD model (post BEPS) and adopts the Principal Purpose Test as a general anti-abuse provision.

Similar to other OECD model-based treaties, this one includes relief on dividend withholding as well as on interest and royalty payments.

Notably, the royalty definition included in the treaty specifically excludes payments for the provision of technical assistance (which would in principle be covered by the provisions of the business profits article).

This may have a significant impact on existing treaties signed by Argentina with OECD countries, as the treatment granted to technical assistance payments under the DTT with Japan (once in force), will automatically apply to those  treaties where the most favourable national clause covered the provision of technical assistance.

Multinational companies should evaluate the potential impact of the provision of these new treaties once in effect. It is of particular importance to pay attention to the expected ramifications of the entry into force of the DTT with Japan in comparison with other DTTs signed by Argentina, as the relief on withholding tax on technical assistance payments can be reduced from 10% or 15% (in most DTTs) to 0% due to the application of the most favourable nation clause .

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