On July 22, 2016 Law 27,260 was enacted (the “Act”). This Act (i) establishes a National Program for a Historic Amendment to the retirement and pension system (the “Program”), (ii) establishes a wide tax amnesty, (iii) establishes a tax moratorium, (iv) amends the personal property tax, and (v) creates a committee for a deep tax amendment. On July 28, 2016, the Executive issued Decree No. 895/2016 (the “Regulatory Decree”) that regulates the Act.
There are still many things to be considered which will be subject to a particular regulation by the Argentine Social Security Office ( Administración Nacional de la Seguridad Social “ANSES”), the Argentine Tax Office (Administración Nacional de Ingresos Públicos “AFIP”), the Argentine Securities and Exchange Commission (Comisión Nacional de Valores “CNV”), among other authorities. Notwithstanding this, we can outline the most important aspects of this Act.
- National Program for Retired People and Pensioners.
This Program aims at paying off debts incurred by the Argentine Government resulting from judicial claims brought by retired people and pensioners involving (i) the redetermination of initial payments and (ii) the adjustment of retirement and pension payments.
In all cases, under the Program the retirement and pension payments must be made by means of transactional agreements with ANSES.
Furthermore, the Act sets forth a universal pension for adults aged 65 and over.
- Tax Amnesty Regime.
Chapter II of the Act establishes a tax amnesty regime (the “Regime”). This Regime is applicable to (i) individuals, (ii) undivided estates; (iii) business entities domiciled or organized in Argentina as of December 31, 2015 and need not be registered with AFIP. (Section 36)
Under this Regime, the abovementioned taxpayers may disclose the possession of assets located in Argentina or abroad as from the Act comes into force (the Executive Branch has not enacted it yet) to March 31, 2017. [Section 36]
The taxpayers excluded from the benefits of this Regime are the following: (i) officials of the Executive, Legislative and Judicial Branch, either National, Provincial or Municipal, who have worked for the government since January 1, 2010, (ii) personnel from security and armed forces ranking below colonel or equivalent, (iii) officials of governmental agencies (including state-owned business entities) not ranking below the director position, (iv) personnel of intelligence agencies regardless of their rank, (v) diplomatic corps, and (vi) individuals declared bankrupt, convicted of tax crimes, accused of economic crimes, etc. who may also not be eligible for the Program or for the exceptional regularization regime of tax debts. In all cases the spouses, parents and minor children are included. [Sections 82, 83 and 84].
Assets subject to the Regime.
The following assets may be disclosed under this Regime:
- National or foreign currency
- Real property located in Argentina or abroad
- Shares of stock and interest in business entities, trusts, bonds, negotiable instruments, ADRs, quotas in funds, among others.
- Any other assets in Argentina and abroad including credits and all kinds of economic rights.
These assets must exist prior to: (i) the date of the enactment of the Act (for individuals) – July 22, 2016- ; and (ii) (for companies) the closing date of financial statements before January 1, 2016. In both cases, such dates will be known as the “Date of the pre-existence of assets.” The Regulatory Decree clarifies that the Act´s date of enactment is July 22, 2016.
In addition, the possession of national or foreign currency deposited on a financial institution in Argentina or abroad, during three months prior to the Date of the pre-existence of assets, may be subject to this Regime provided that prior to the voluntary and exceptional disclosure of such funds it can be proved that:
- These funds are used to acquire real or personal property (fungible goods) in Argentina or abroad.
- These funds are used as capital or loans by other taxpayers subject to the income tax domiciled in Argentina.
The Regulatory Decree establishes that tax obligations pending administrative, administrative adversarial or judicial proceedings in criminal tax matters, criminal exchange matters, or customs matters may be subject to the benefits of the Act.
The only assets excluded from the regime are the funds deposited in jurisdictions or countries described by the Financial Action Task Force as High-risk and non-cooperative (Afghanistan , Bosnia , North Korea , Guyana , Iran , Iraq , Laos , Syria , Uganda , Vanuatu and Yemen).
Section 2 of the Regulatory Decree establishes that the transactions carried out for the disclosed assets to be registered under the name of the declarant – when filing the income or personal property tax documents for the 2016 period expiring in 2017 (Section 38) – will be deemed not onerous and will not be subject to any tax. This condition (i.e. the assets registered under the name of the declarant at that moment) will not apply when the owner of the assets is an entity (Section 39 Law 27,260). This means that the assets will not be subject to the tax on bank debits and credits
Formalities of the Disclosure.
- Currency or securities held abroad: The disclosure will be made by means of a statement of the deposit as provided for in AFIP regulation. There is no need to enter the funds or securities in Argentina, but if the taxpayer wishes to do so, he must do it through a transfer to a financial institution authorized to operate in Argentina. The taxpayer must request the foreign financial institution a statement of account as of the Date of the Pre-existence of Assets, which must include:
- The identification of the foreign entity and the jurisdiction where such entity is duly organized,
- Account number,
- Name and domicile of the holder of the account,
- Statement establishing that the account was opened before the Date of the Preexistence of Assets, and
- The date and place of issuance of the electronic statement of account.
- Currency or securities deposited in Argentina: The disclosure will be made by means of a statement and evidence of the deposit.
- National or foreign cash currency held in Argentina: The disclosure will be made by means of deposit in a financial institution authorized to operate in Argentina at any time until October 31, 2016. This fund must remained deposited for not less than 6 months or until March 31, 2017, whichever is longer, unless bonds or shares of mutual funds are subscribed as described below.[Section 44]
- Any other real and personal property held in Argentina or abroad: The disclosure will be made by means of an affidavit which must identify the real and personal property held in Argentina or abroad in accordance with the requirements set forth in the regulation.
Pursuant to the requirements set forth in AFIP regulation, the statement will be valid even when the assets disclosed are in possession of or registered in the name of the spouse, ascendants or descendants in the first or second degree of consanguinity or affinity, or even third parties. The Regulatory Decree establishes that the family members mentioned in the Act need not be Argentine residents.
In all cases prior to the deadline date for the submission of the affidavit for the income tax of fiscal period of 2017 (we understand that it was intended to mean 2016) the assets disclosed must be registered under the name of the declarant. [Section 38].
Finally, this Regime includes the disregard of the legal entity doctrine and establishes that individuals may choose, for only one time, to disclose, using their personal Single Taxpayer Identification Code, the possession of assets and currency held in the name of companies, trusts, foundations, associations, or any other entity organized abroad and owned by such individuals as of December 31, 2015. In the event there is more than one owner, holder, or shareholder, the assets may be disclosed in the proportion agreed by those who make the voluntary and exceptional disclosure. [Section 39]
Moreover, pursuant to Section 38 of the Act, when the assets are registered under the name of a corporate entity or trust (Section 3, Regulatory Decree), said entity must disclose the possession of assets in the same way as individuals, and assess the assets in accordance with Section 40 of the Act, subtracting the amounts which are eventually disclosed by individuals.
The disclosure under the terms of the Act about shareholders, partners, trustees, settlors, directors, etc. will grant all the benefits under this Act regarding the assets subject to the disclosure in relation to any person related to such entity.
Criteria for the Assessment of the Assets subject to the Disclosure.
- Possession of foreign currency or assets: they will be assessed at the national currency taking into account the exchange rate of Banco de la Nación Argentina as of the Date of the Preexistence of the Assets (i.e. The date of the enactment of the Act).
- Shares, Interest in trust, foundations, companies, or other entities organized in Argentina or abroad: they will be assessed taking into account the proportional value of such interest over the total amount of assets.
- Real property: they will be assessed taking into account the market value in accordance with the regulation.
- Other assets: they will be assessed taking into account the Date of the Preexistence of Assets (i.e. the date of the enactment of the Act) in accordance with, depending on the taxpayer, the rules on Personal Property or the rules on Minimum Assumed Income Tax.
The Act provides a special tax (the “Special Tax”) which is calculated taking into account the value of the disclosed assets as mentioned above. This Special Tax providesthe following rates:
- Real property located in Argentina or abroad: 5%
- Assets, including real property, that do not exceed ARS 305,000: 0%
- Assets, including real property, between ARS 305,000 and ARS 800,000: 5%
- Assets that exceed ARS 800,000 submitted until December 31, 2016: 10%
- Assets that exceed ARS 800,000 submitted until March 31, 2017: 15%
In d) and e) the taxpayer may choose to pay the Special Tax (until March 3, 2017) by means of the delivery of BONAR 17 and GLOBAL 17 at their nominal value [Section 41].
The Special Tax need not be paid when the purpose of the funds is:
- To originally acquire government bonds which must have the following characteristics:
- Dollar-denominated 3-year bond to be acquired until August 30, 2016, with a coupon of 0%, non transferable and not negotiable.
- Dollar-denominated 7-year bond, with a coupon of 1%, non transferable and not negotiable for the first four years. The original acquisition of this bond excludes from the Special Tax an amount equal to three times the amount subscribed. This means that this bond must be subscribed for one third of the amount to be disclosed.
- To subscribe or purchase quotas of certain mutual funds: the purpose of mutual funds must be the financing of infrastructure projects, productive investments, real estate projects, renewable energy, smes, mortgage loans, etc. The funds must remain invested within the mutual fund for 5 years.
The Special Tax must be ascertained and entered in accordance with the terms and conditions established by AFIP regulation. [Section 43]. The revenues of the Special Tax will be allocated to the Program mentioned in part 1. [Section 51].
Benefits of the Regime
The taxpayers adhering to the Regime:
- Will not be subject to adjustments for unjustified asset increases in relation to the possessions disclosed,
- Will be released from any action for violations of criminal tax law, exchange criminal law, customs law or administrative violations, and
- Will be released from the payment of taxes they may have omitted to register and may stem from assets and possessions disclosed (excluding spending/tax credit resulting from false invoices).
In the event that AFIP detects non-disclosed assets or possessions as of December 31, 2015, it will deprive the taxpayer of the benefits of the Regime.
Section 16 of the Regulatory Decree establishes the minimum that may be detected by AFIP without losing the benefits of the Act:
- ARS 305,000 or
- 1% of the disclosed assets, whichever is higher
- Tax Moratorium – Exceptional Regularization of Tax, Social Security and Customs Obligations.
The Act establishes a system of Exceptional Regularization of Tax, Social Security and Customs Obligations (the “System”) available to (i) taxpayers (tax and customs); (ii) social security payers; and (iii) tax collection and withholding agencies.
The obligations that may be included in the System are the following:
- Tax, customs and social security obligations due as of May 31, 2016;
- Violations related to such obligations;
- Obligations subject to judicial or administrative claims;
- Obligations resulting from collection regimes;
- Obligations included in overdue or still-in-force plans;
- Expired obligations that include criminal tax/economic complaints.
The System does not include Social Security contributions, periodical payments of labor risk insurance (Aseguradoras de Riesgos de Trabajo – “ART”), and periodical payments of Tax Debt Payment Plans where the criminal proceedings have lapsed.
Taxpayers may enter the System until March 31, 2017.
The System provides that taxpayers adhering to the program will enjoy the following benefits:
- Full remission of penalties (tax, social security, and customs penalties) that have not become final as of the date of the adhesion to the System.
- Annulment of criminal proceedings as long as no final judicial decision has been passed as of the date the debt is fully paid off, in accordance with the provisions of the System (either in cash or in periodical payments).
- Remission of penalties arising from formal violations whenever the obligation has been performed prior to (i) the deadline date to adhere to the System, (ii) the entry into force of this System, or (iii) when, considering the nature of the non-performed obligation, the performance of such obligation renders impossible after the violation, which must have been committed prior to May 31, 2016. [Section 55]
- Deregistration of the taxpayer from the Public Registry of Employers with Labor Penalties (REPSAL).
- Total remission of compensatory and/or punitive interest arising from obligations of autonomous taxpayers.
- Partial remission of compensatory and/or punitive interest resulting from tax and customs obligations, amount of which must exceed the following percentages:
- 10% of overdue amounts arising from obligations of 2015 and/or overdue as of May 31, 2016 from monthly obligations,
- 25% of overdue amounts resulting from obligations of 2013 and 2014.
- 50% of overdue amounts resulting from obligations of 2011 and 2012.
- 75% of overdue amounts resulting from obligations of 2010 and prior fiscal periods.
- Total remission of compensatory and/or punitive interest corresponding to the amounts paid off prior to the effective date of the Act.
The requirements to enter the System are the following:
- To pay the capital, the penalties and the unremitted interest (in cash or in periodical payments).
- To unconditionally admit the obligations regularized.
- To discontinue all claims, including the right of repetition.
- To pay legal costs.
- To prove that the taxpayer subject to the omitted tax collection or withholding included such obligation in the System.
The system establishes the following methods for the payment of the capital, the final penalties, and the unremitted interest:
- Payment in cash with a 15% reduction of the consolidated debt, or
- Down payments of 5% of the debt, and the remaining amount in 60 monthly payments with an monthly interest rate of 1,5%, or
- Down payment of 10% of the debt , and the remaining part in 90 monthly payments with an interest rate equivalent to the lending rate of Banco de la Nación Argentina for SMEs, or
- Down payment of 15% of the debt, and the remaining part in 90 monthly payments with an interest rate equivalent to the lending rate of Banco de la Nación Argentina, subject to a minimum monthly 1, 5% interest for medium or large size taxpayers.
- Amendments to the Personal Property Tax.
Firstly, the concept of the exempt minimum is replaced (ARS 305, 000 – but if the amount is higher, the total assets will be subject to the tax) with the concept of nontaxable minimum which involves an amount deducted from the tax fiscal period.
Secondly, the Act increases the amounts of the nontaxable income:
- Fiscal period 2016: ARS 800,000
- Fiscal period 2017: ARS 950,000
- Fiscal period 2018 and successive fiscal periods: ARS 1,050,000.
Finally, the personal property tax rates are reduced:
- Fiscal period 2016: 0,75%
- Fiscal period 2017: 0,50%
- Fiscal period 2018 and successive fiscal periods: 0,25%
The nontaxable minimum is not applicable to chattels (5% of the total amount of real or personal property subject to the taxation system in Argentina or abroad.) [Section 68]
The payment of similar taxes levied abroad may be taken as payment but only to the extent that the tax minimum on property held abroad increases. [Section 70]
- Amendments to the Income Tax.
Firstly, exchange rate fluctuations involving foreign income are exempted from the income tax. [Section 73] The Regulatory Decree provides that this income tax exemption will only apply to individuals or undivided estates, but not to business organizations.
Secondly, the Act establishes that the acquisition cost shall be calculated at the exchange rate of the date of the acquisition.
Furthermore, the Act eliminates the Minimum Assumed Income Tax as from January 1, 2019.
- Bicameral Committee for the Amendment to the National Tax System
The Act, as previously mentioned, provides the creation of a Bicameral Committee for the Tax Amendment (the “Committee”).
The purpose of this Committee is to analyze and evaluate the proposed tax amendments made by the Executive Branch aimed at:
- Strengthening the equality of the tax pressure;
- Going into detail about the progress of the tax pressure;
- Simplifying the tax structure and administration;
- Strengthening the federal complementarity and organization; and
- Tending to introduce amendments gradually in order for the Government tax actions to be more predictable and therefore, reducing the taxpayers’ uncertainty.
It is clear that (i) taxpayers are now facing uncertainty, and (ii) the purpose is not to eliminate the uncertainty but simply reduce it.
The Executive Branch will send the bill(s) for the amendment to the national tax system within 365 days after the creation of the Committee. In other words, we have to wait to see some kind of reduction on tax uncertainty.
- Reformulation of the rules of Controlled Foreign Corporation.
In addition, the Act reformulates the CFC (Controlled Foreign Corporation) rules. Sections 133(a) and 148 of the Income Tax Law, and section 165 VI 1-6 of its regulatory decree govern the rules of controlled corporations.
- When passive income (dividends, interest, royalties, rents, profits resulting from the purchase of shares of stock and bonds, etc) arises from the foreign premises of an Argentine resident
- For more than 50%, and
- Such premises are located in a non-cooperative jurisdiction (see the list of non-cooperative jurisdictions here: http://www.afip.gov.ar/genericos/novedades/jurisdiccionesCooperantes.asp)
- The passive income of such premises will be taxable to the Argentine resident.
Section 90 of the Act establishes the creation of a Registry of Foreign Entities in charge of AFIP.
The Argentine taxpayers who:
- Hold more than 50% of capital shares,
- Are directors, attorneys, managers, agents, members of audit committees, or those who perform similar activities in:
- Companies, trusts, foundations, or any other foreign entity
- Who earn passive incomefor more than 50% of their gross income during the calendar year
- Must inform such registry of the data identifying the foreign entity and its relationship with it.
AFIP will regulate the formalities, terms and conditions of such registry.