On December 29, 2017, Law No. 27340 (the “Law”) was enacted, introducing important amendments to the Argentine tax system. The most remarkable amendments are related to national (federal) taxes, social security contributions and the criminal tax regime.
The main amendments to the Argentine tax system introduced by the Law include the following:
- INCOME TAX
1.1 Business organizations. Retained earnings from corporations and permanent establishments related to fiscal years initiated on 01/01/2018 will be taxed at 30% and at 25% in relation with fiscal years initiated as from 01/01/2020. This involves a 35% reduction of the previous rate.
The distribution of dividends is subject to an additional tax of 7% for 2018 and 13% as from 2020. However, the Law renders void the equalization tax set forth by the section which follows section 69 of the tax law, and therefore, dividends and earnings resulting from accrued benefits prior to the date the Law becomes effective will be exempted from the additional tax.
The Law also establishes that simplified corporations (SAS) and single-shareholder corporations (SAU) will be subject to the tax.
1.2 Presumed income for disposition of funds and goods. The Law provides for a presumed interest for each currency, which must be duly regulated. With regard to the disposition of goods, the Law establishes that the presumed income will be equivalent to a yearly rate of 8% of the real property’s current market value and 20% of the current market value of the rest of the goods per year.
1.3 Transfer price. The Law establishes that the applicable rules must set a minimum limit to the taxpayers´ annual income and a minimum amount of transactions in order to enforce the filing of annual affidavits related to transfer price. Bear in mind that Argentina had already implemented the country-by-country report (http://canosa.com/argentina-implements-new-transfer-price-country-country-report-implementing-action-13-beps/).
1.3.1 Imports and exports. With regard to the import and export of goods with the intervention of foreign intermediaries, the taxpayer must prove that the intermediary´s remuneration is proportional to the risks, functions and assets involved in the operation, provided that the intermediary, the exporter or the importer are linked with the local taxpayer. If the foreign intermediary is linked with the local taxpayer and besides he is located in a non-cooperative jurisdiction or in a low or zero tax jurisdiction, the taxpayer must file the agreement with the Argentine Tax Authorities (AFIP).
1.3.2. Sale of real property. Earnings obtained by individuals from the sale of real property, except when the property involves dwelling, will be taxed at 15%. This tax replaces the tax on transfer of real property for goods sold and acquired as from 01/01/2018.
1.4 Employees’ compensation. The amounts arising from the termination of the employment agreement of individuals with directive or executive positions in companies and that exceed the minimum compensatory amounts as established by the Argentine labor laws will be taxed. If the amounts arise from a consensual agreement, said sum of money will be taxed as they exceed the minimum compensatory amount set forth by the applicable labor law for unjustified dismissal.
1.5 Permanent establishment. The Law defines the “permanent establishment” as a fix place of business by which a foreign person performs his activity in whole or in part. Moreover, the Law establishes that permanent establishments include but are not limited to the following: a) a headquarter, b) a branch, c) a factory. In addition, the Law provides that there is no permanent establishment when an individual acts in Argentina on behalf of a foreign human or legal person and: a) has a deposit account in the country where he regularly delivers goods on behalf of the foreign person, b) takes risks on behalf of the foreign person, c) acts following detailed instructions of or under the control of a foreign person, etc.
1.6 Self-employed person. Self-employed persons who perform independent activities will be entitled to a special deduction by 100% and 150% for new professionals and new entrepreneurs in accordance with the regulation. Payment of contributions by self-employed persons to the Argentine Social Security System (SIPA) or to the applicable pension fund is an essential requirement for calculating the deduction.
1.7 International fiscal transparency Trust and other offshore Structures. A tax on profits whose main purpose is the management of assets and are obtained from trusts, private interest foundations and other similar structures organized, domiciled or located abroad, as well as any agreement made abroad or under a foreign legal system, will be imposed to the resident who controls them at the fiscal year when the annual business activity of said entities or agreements terminate. The Law provides that income earned by trusts incorporated, domiciled or located abroad must be declared by the local taxpayer who controls the trust. It is important to highlight that its following paragraph defines what shall be construed as “control”. It will be considered that the local taxpayer has control when there is evidence that the financial assets remain under its power and/or are being managed by it (for example when the settlor is also beneficiary, when the taxpayer directly or indirectly decides to invest or divest the assets; when it holds rights to dispose the assets of the trust, it has a right to appoint administrators, it is manager and its vote defines the decisions to be followed; it has faculties to remove managers, it has a current right to the benefits.
1.8 Non-cooperative and low or zero tax jurisdictions. The Law defines “non-cooperative jurisdictions” as countries or jurisdictions where there are no tax information exchange agreements in force or international agreements to avoid double taxation under which a wide information exchange with Argentina is allowed. Countries which have entered into agreements with Argentina, but do not effectively comply with them, will also be deemed non-cooperative jurisdictions. The Law leaves the preparation of a list of non-cooperative jurisdictions to the Executive.
In addition, low or zero tax jurisdictions mean the countries, jurisdictions, territories, associated states or special tax regimes which impose a maximum tax on corporate income at less than 60% of the current rate in Argentina.
1.9 Indirect transfer of assets located in Argentina. The Law considers income from Argentine source the amounts obtained by non-residents arising from the transfer of shares, quotas, convertible stock or any other certificate representing ownership interest in an entity, fund, trust or similar instrument, permanent establishment, property subject to encumbrance or any other entity organized, domiciled or located abroad, provided certain statutory conditions are met. Transfers made within an economic group are excluded.
1.10 Financial income. The Law imposes a tax on financial income which was previously exempted or not subject to taxation to individuals or undivided estate situated in Argentina, including: capital gains from shares of stock and deposit certificates for shares of capital stock, and any other stock or quotes, digital currency, transfer of financial trust certificates and, in general, the assignment of rights over trusts and similar contracts, corporate bonds and quotas of mutual funds (except those exclusively created by publicly traded shares). Examples of the application of the tax include the following: a) earnings from the sale of shares of not publicly traded Argentine corporations will be taxed at 15%, b) earnings from the sale of interest of Argentine bonds in Argentine pesos and without any adjustment clause will be taxed at 5%, c) interests from fixed term deposits in Argentine pesos and without adjustment clause will be taxed at 5%.
1.10 Ownership interest in foreign entities. Income of foreign source obtained by Argentine residents for their direct or indirect participation in corporations or any other entity organized, domiciled or located abroad or under a foreign legal regime, will be subject to tax without deferral. This will apply provided certain requirements are met in relation with the percentage of ownership interest in the company, type of income obtained, etc.
1.11 Interests from financial debts. The Law sets forth a limit for the deduction of interests from financial debts with linked individuals, either residents or not. These interests will be deducted up to the annual amount established by the Executive or up to 30% of the net profit resulting from deducting interests and depreciation, whichever is greater. In order to determine this limit, the accumulated exceeding amount of the previous 3 fiscal years could be added, since the actual deducted interest is inferior to the limit applicable to each of them. Interests that could not have been deducted may be transferred and added to those corresponding to the following 5 fiscal years.
- VALUE ADDED TAX (“VAT”)
2.1 Digital services. The Law imposes the VAT on digital services which are rendered by residents or persons located abroad (e.g. Spotify or Netflix) and whose use or effective operation is performed in Argentina. The access and/or download of electronic books will be exempted from the VAT.
The tax will be levied by the local provider. In the event an intermediary intervenes on the payment (e.g. credit card), it must act as a withholding agent.
This amendment is effective to taxable events occurred as from February 1, 2018.
2.2 VAT return for investment in fixed assets. The Law introduces a permanent return system for tax credits arising from the purchase, construction, manufacturing or import of fixed assets (except automobiles), which form the taxpayers´ credit balance after 6 consecutive fiscal years as from the period in which the calculation deemed applicable.
This return mechanism will be applicable to tax credits generated as from 01/01/2018.
- SOCIAL SECURITY
3.1 Rate of employers´ contributions. The Law provides for a gradual unification of the employers’ payroll contributions rate at 19.5% for employers from the private sector and destined for the subsystems of the Social Security System governed by Laws No. 19032 (the Argentine Institute of Social Services for Retired and Pensioners), 24013 (National Employment Fund), 24241 (the Argentine Integrated Social Security System) and 24714 (Family Allowance System), in accordance with the following chart:
|Current framework of Employers||Until Jan 31, 2018||From Feb 1, 2018 to Dec 31, 2018||2019||2020||2021||2022|
|Dec. 814/2001 Section 2 subsection a)||21.00%||20.70%||20.40%||20.10%||19.80%||19.50%|
|Dec. 814/2001 Section 2 subsection a)||17.00%||17.50%||18.00%||18.50%||19.00%||19.50%|
The Law establishes that for each of the employees, an amount of $2,400 in 2018 will be subtracted on a monthly basis from the taxable income based on which contributions are calculated. The same amount will be added for the subsequent years until reaching the amount of $12,000 in 2022. The abovementioned amount will be updated as from January 2019 considering the changes in the Consumer Price Index (CPI).
Moreover, the Law gradually eliminates the reduction of employers’ contributions which was established by Law 26940 for micro, small and medium enterprises.
3.2 VAT fiscal credit The Law gradually eliminates the possibility of considering certain percentage of employers’ contributions as VAT fiscal credit as established by Decree 814/2001 for certain specific zones in Argentina.
This provision will be applicable for employers’ contributions accrued as from February 1, 2018.
- SIMPLIFIED TAX REGIME FOR SMALL TAXPAYERS.
4.1 Amendments to be effective as from June 1, 2018. a) De facto business association and entities not duly organized can no longer enter the simplified tax regime for small taxpayers, b) The Law increases the unit price for the sale of real property at $15000, previously at $2500, c) The Law eliminates the requirement of the minimum amount of employees for remaining in the highest categories of real property sales, c) the Law replaces the four-month reclassification regime with a six-month system to be applied by the end of each semester (July and January).
- FISCAL PROCEDURE
5.1 Electronic tax domicile. Pursuant to the Law, taxpayers must have an electronic tax domicile for notice purposes. However, AFIP may set forth exceptions based on connectivity or other circumstances that may hamper or make its use inadvisable.
5.2 Rectification of affidavits. The Law establishes that affidavits to “rectify for less” may be filed within 5 days after the general expiration date. The last filed affidavit substitutes the previous one provided that the difference resulting from the rectification does not exceed 5% of the taxable income originally declared. The resulting credit balance will be freely available.
5.3 Voluntary closing agreement. The tax authorities are entitled to enter a stage of “voluntary closing agreement” when necessary for determining decisive facts, the correct application of the laws to the particular case, or for making estimates, assessments or measuring of information, elements or relevant features related to the tax obligation that are difficult to quantify, or when there is a situation that requires a conciliatory solution due to its nature, complexity or importance.
The stage of voluntary closing agreement will be prior to any determination made by the tax authorities, and the case subject to conciliation will be heard by a conciliation body composed of the officials intervening in the dispute, AFIP high-ranking law officials and the appointed internal auditing authorities.
5.4 Precautionary measures. Under the Law, AFIP is entitled to take precautionary measures for preventing acts of tax evasion. For this purpose, AFIP may put limits on the issuance of receipts or modify the registered condition of taxpayers.
5.5 Penalty system. The main amendments to the tax penalty system include the following:
5.5.1 Shutdown. The Law eliminates the application of fines impose together with the shutdown. In addition, the tax authorities may order shutdowns for 2 to 6 days (before: 3 to 10 days).
The Law introduces as a ground for shutdown the social security evasion when the business premises hold at least 10 employees, have 50% or more unregistered employees, even when duly registered as employer.
5.5.2 Omission. The fine for omission, which previously involved between 50% and 100%, now involves a fixed 100% of the omitted tax or the tax no longer withheld or collected. The fine will be equivalent to 200% in cases of recidivism or when the omission arises from operations with foreign entities. The fine will be up to 300% of the omitted tax or the tax no longer withheld or collected for omissions made by recidivist in relation with operations made with foreign entities.
5.5.3 Fraud. The Law establishes fines amounting to 2 to 6 times the value of the evaded tax, which means a reduction in relation with the previous system which provided for fines of between 2 to 10 times the evaded tax. Moreover, the Law introduces two new types of fraud: the improper advantage of tax benefits and the willful pretense of payment.
5.6 Tax secrecy. Tax secrecy will not apply for the competent authorities which are part of the agreements to avoid double taxation entered into by Argentina, and in relation with balance sheets and financial statements filed by taxpayers.
5.7 Advance price agreements. The Law introduces a system of advance price agreements known as “Joint Determination of International Transaction Prices” by which the taxpayer and the tax authorities may determine the criteria to be adopted with regard to the transfer prices under which the international transactions will be assessed.
- CRIMINAL TAX REGIME
6.1 Update of amounts. The Law updates the amounts of the objective conditions for criminal liability in accordance with the following chart:
|SECTION||TYPE OF CRIMINAL OFFENSE||PREVIOUS AMOUNT||AMENDED AMOUNT|
|1||Simple tax evasion||$400,000||$1,500,000|
|2||Willful tax evasion||Generic||$4,000,000||$15,000,000|
|Intervention of individuals||$800,000||$2,000,000|
|3||Improper advantage of tax benefits||$400,000||$1,500,000|
|5||Simple social security evasion||$80,000||$200,000|
|6||Willful social security evasion||Generic||$400,000||$1,000,000|
|Intervention of individuals||$160,000||$400,000|
|7||Misappropriation of social security resources||$20,000||$100,000|
|8||Fraudulent obtainment of tax benefits||No limit||No limit|
|10||Willful pretense of cancellation of debts||No limit||$500,000 taxes|
|$100,000 social security|
|11||Willful alteration of records||No limit||No limit|
6.2 Waiver of criminal complaint. When the tax or social security evasion is simple or willful, the Law establishes that AFIP is exempted from a criminal complaint if the taxpayer´s obligations were unconditionally and totally cancelled prior to the filing of the criminal complaint.
- TAX VALUE UNIT
7.1 Tax value unit. The Law creates the Tax Value Unit (TVU) as a uniform value unit for determining the fixed amounts, minimum amounts, scales, penalties and any other monetary factor set forth in the tax laws as well as the obligations under AFIP´s application, collection and control, including those established in procedural tax laws and the monetary parameters of the Criminal Tax Regime. Before September 15, 2018, the Executive must send to the Legislature a bill establishing the quantity of TVU applicable to each monetary parameter.
7.3 TVU Update. The TVU will be adjusted per year based on the annual variation of the CPI published by the National Institute of Statistics and Censuses (INDEC). In order to determine the applicable amount for crimes and other offenses, the current conversion between the Argentine peso and the TVU at the time of the occurrence of the crime will be taken into account. As to the cancellation of penalties, the current relation at the time of the cancellation will be considered.