Argentina has recently amended the regulations on harmful tax competition in relation to low or no-tax jurisdictions, which set out a black list identifying tax havens. Under the new decree, for the purposes of the Income Tax Law and the applicable regulations, all references to 'low or no-tax jurisdictions' will now instead refer to 'non-cooperative countries for purposes of fiscal transparency'.
Following the cancellation of the former double tax treaty between Spain and Argentina in 2012, a new treaty between the two countries has recently been signed. The new treaty reflects in general terms the structure of its predecessor, while introducing a few relevant changes. Although these changes are significant, a mere renegotiation of the then-extant treaty would arguably have sufficed.
A conflict between the Income Tax Law and the Companies Act may arise if, during the two-year period following a restructuring, the surviving company (or companies) must make a capital reduction following the mandate imposed by the Companies Act, thus potentially jeopardising the requirement under the Income Tax Law for the continuity of proprietary interest. This conflict was analysed in a recent appellate court decision.
Following its unilateral termination of tax treaties with Chile, Spain and Switzerland, Argentina is in the process of negotiating new double tax agreements. It is hoped that this will ensure that the continuity of treaty benefits can be preserved. A number of rulings are also pending before the Supreme Court dealing with certain treaty law open issues for which a definition or clarification is expected.
In 2011 the Argentine government created a commission to evaluate and review the double tax treaties that were in force or those to be signed in future. After a year of inaction, the goverment recently decided unilaterally to terminate the treaty with Switzerland. Since then, two other treaties have also been denounced (those with Chile and Spain) as a result of the commission's analysis and determination.
Article 73 of the Income Tax Law states that transfers of cash or assets to third parties that are not performed in the company's interest are subject to an interest presumption at a fixed rate determined by statute. However, without a precise definition of the relevant terms, the scope of the requirements under which Article 73 applies is subject to debate. Two Supreme Court decisions have shed light on the issue.
The Federal Tax Court recently analysed the scope and application of the most-favoured nation clause contained in the Latin American Integration Association treaty. The Tax Court adopted a very clear position on how the scope of the clause must be construed, in the context of the treaty in particular, and in any other treaty with similar features.
Congress has recently passed amendments to the preferential tax regime for the software industry, adding new tax advantages and an extended benefit period. These changes are aimed at promoting the establishment of new software manufacturers in Argentina and encouraging the export of services and the resulting intangible property, as considered strategic for the development of the Argentine economy.
Several discussions have arisen over the past few years regarding the registration of transfer of technology agreements with the Argentine Trade and Patent Office (INPI). In one such case, the Supreme Court recently concluded that payments made under such agreements are deductible and therefore benefit from the reduced withholding tax rates, provided that registration takes place before payments are made.
In a recent case concerning a joint Argentine venture between Ford Motor Company and Volkswagen AG, the tax authorities challenged a $10 million loan allegedly granted by Deutsche Bank AG, New York. The resulting Supreme Court decision demonstrated what should not be done when entering into a pretended genuine financial transaction. The tax consequences were devastating to the payor.
Under transfer pricing law, the best method of assessing source income from exports is now considered to be the market price prevailing at the date on which the goods are shipped, regardless of the price effectively agreed on at the time the contract is executed. The federal tax court recently applied this method to export transactions performed before its introduction and without verifying the statutory conditions required for it to apply.
The use of holding companies to channel investments into Argentina presents certain tax issues that are worth considering before embarking on a project. Relevant factors include tax treaty network opportunities, traps for the unwary related to profit distribution, personal assets tax on the holding of shares and recent tax developments which may affect the analysis of future investments.
In January 2009 the competent Argentine authority on treaty interpretation issued Memorandum 64/2009. This is the first time that the authority has addressed the issue of treaty abuse and taken a position on whether domestic general anti-avoidance rules can be applied in a treaty context.
Argentina has been recognized by the Organization for Economic Cooperation and Development as one of the few developing countries that has signed a significant number of tax information exchange agreements over the last year. The latest agreements aim to create a more efficient set of rules to challenge and combat tax fraud, tax evasion and tax avoidance.
The equalisation tax is a final 35% withholding on the excess of corporate accounting profits over taxable income withheld at the time of distribution. There is debate as to whether this is a corporate tax or a shareholder burden. A recent holding by the Supreme Court of Justice in Cerro Vanguardia SA shows that the analysis remains far from clear.
The Argentine tax system deems fees paid by a resident for technical, financial or similar advice rendered from abroad as 'Argentine source income', regardless of where it is rendered. However, federal courts have been inconsistent in their treatment of income from online reservation services, which has led to an appreciable uncertainty for clients rendering or hiring these services.
Argentine tax law used to allow inflation adjustments to correct the reporting and taxing of corporate income for inflation on nominal income. When Argentina pegged its currency to the US dollar in 1991, Congress eliminated all types of inflation adjustment. However, while inflation adjustments were unnecessary during the next 10 years, the legislature never actually repealed the income tax rules permitting such adjustments.
Corporate restructurings enjoy special tax treatment under Argentine tax laws. Statutory tax-free status requirements advance various legislative objectives regarding the tax-free reorganization regime. One such goal is to neutralize the taxation of corporate reorganizations to facilitate international cooperation between groups of companies.
Congress recently enacted a comprehensive law to induce taxpayers to come clean about undeclared assets and underpaid taxes. The Executive Branch has issued implementing regulations. However, despite the publication of these technical rules, several questions remain, the answers to which could significantly affect the decision making of Argentine economic participants.
Participation loans allow financial institutions to participate in a loan already entered into by a lead bank, which is generally the party originating the loan and dealing directly with the borrower. This gives rise to queries regarding the tax treatment applicable to interest paid by borrowers to the lead bank when funds have been partially provided by other participants.