Income Tax Regulations
On 27 December 2018, the Argentine Executive Branch issued Regulatory Decree 1,170/2018 (Decree), which regulates several aspects of the amendments introduced to the Income Tax Law (ITL) by the tax reform enacted by Law 27,430.
The most relevant topics covered by the regulations are summarised below:
With respect to transfer pricing, the Decree provides regulations on the following topics:
- More details on the information requirement related to import and/or export of goods carried out through international intermediaries (intermediary substance test).
- Further guidance on the methodology for the valuation of exports of commodities carried out through international intermediaries.
- Upgrade to Decree status the list of situations that are deemed to constitute an ‘economic relationship’ for documentation purposes, and additional guidance regarding jurisdictions that are considered of low or nil taxation (tax havens).
- Introduction of further guidance regarding comparability analysis, risk assessment of the transactions, and transfer pricing methods consideration.
- Permanent establishment (PE) clarifications on the dependent agent status.
Capital gains tax on indirect transfers
The Decree also provided further guidance regarding the situations under which an indirect transfer of Argentine assets may be exempt from tax under the 'intra-group relief'.
In this sense, the rule establishes that a transfer is considered to be made within the same 'economic group' when: (i) a transferor holds, directly or indirectly, 80% or more of the paid-in capital of the transferee, or vice versa; or when one or more entities jointly hold, directly or indirectly, 80% or more of both the transferor and the transferee; and (ii) this relationship existed for a period of at least two years prior to the relevant indirect transfer.
The exemption shall not apply if the only purpose of the transfer is to obtain a more favourable tax treatment to the one that should have corresponded without the existence of such economic group.
Dividend withholding and equalisation tax
The regulations introduced some clarifications on how the dividend withholding should apply during the transitional period where the rate goes from the 7% to 13% (i.e. profits generated in years starting in 2018 through 2020).
Additionally, the Decree established the procedure to calculate the equalisation tax when the taxpayer distributes pre-2018 profits. It is worth noting that equalisation tax (repealed as of 2018 but still applicable on pre-2018 profits) applies on dividend distributions in excess of accumulated tax earnings at a rate of 35%.
Thin capitalisation rules
The Decree also sets forth that interest paid to a non-resident, and where the corresponding withholding tax (WHT) was made (even when reduced by an applicable double tax treaty [DTT]), would not be subject to the newly enacted thin capitalisation rules.
However, the above exception would not cover foreign exchange losses arising from inter-company financing granted by a foreign related party, as those losses are not subject to taxation in Argentina.
Value-added Tax (VAT) Regulations
On 11 December 2018, the Federal Tax Authorities issued General Resolution 4,356/2018, which established the mechanism to report and pay the VAT related to the provisions of services within Argentina by non-resident providers.
According to VAT regulations, those that are tenants, borrowers, representatives, or intermediaries of a non-resident that carries out taxable transactions within Argentina are responsible for the VAT corresponding to the non-resident as substitute taxpayers. As a substitute taxpayer, the local party is required to determine and pay the VAT related to the relevant transaction. For these purposes, they will have to register before the Federal Tax Authorities. The VAT paid by the substitute taxpayer would be creditable by the latter as input VAT in its own VAT return.
The Resolution 4,356/2018 ('Resolution') sets forth that the above-mentioned substitute must determine and pay the relevant VAT within ten business days from the one the taxable event took place.
New export duty on goods and services
As of 4 September 2018 and until 31 December 2020, an export duty of 12% is established for the export of all merchandise included in the tariff positions of the Mercosur Common Nomenclature.
This export duty may not exceed 4 Argentine pesos (ARS) for each US dollar (USD) of the taxable value or the official freight on board (FOB) price, as applicable.
For the merchandise indicated in Annex I of the Decree, said maximum limit will be ARS 3 for each US dollar of the taxable value or the official FOB price, as applicable.
Likewise, the rates established in Annex XIII of Decree No. 1,126 of 2017 are replaced by rates between 11% and 18%.
It should be noted that in the case of goods whose export is already taxed, the export duty of 12% here established will be added to the export duties in force, including those of the previous paragraph.
In addition to the above, Decree No. 1,201/2018, published in the Argentine Official Gazette on 2 January 2019, establishes a new duty on the exportation of services. The 12% tax applies to services rendered in Argentina where (i) there is no employment relationship between the supplier and recipient of the service and (ii) the service is used or exploited abroad. This includes the exportation of software-related services, as well as consulting services rendered in Argentina and used abroad.
The exportation tax, which is levied at a 12% rate, may not exceed ARS 4 for each US dollar of the taxable value, which generally is the value invoiced.
Micro and small exporters will be subject to tax once their annual revenues from the export of services exceed USD 600,000.
The exportation tax is effective 1 January 2019 for services rendered and invoiced as of that date, even if the contract was signed before that date. This new tax applies temporarily through 31 December 2020.