On January 11, 2018 the Argentine Tax Authorities (“AFIP”) issued General Resolution No 4190/2018 (“GR 4190”), published in the Official Gazette on January 12th. GR 4190 repeals the withholding system for income tax in cases where both the seller and the purchaser of holdings in local Argentine companies are not residents of Argentina.
Law No 26,893 issued on September, 2013 levied Income Tax (“IT”) on income derived by the sale of shares, quotas, shares in trusts and other kinds of corporate participations in Argentina; this works in fact like a “capital gain tax” on income obtained by the product of such sale.
In case of foreign holders. the rates vary from (i) 13,5% on the sell price for the transfer of the participation or asset, or (ii) 15% on the difference between the value of the transfer minus the cost of the corporate participation (capital contribution and/or original acquisition of the Argentine company); whichever is larger.
Regarding the payment of the tax, it is important to know who will be the purchaser of the participation in the local company. In case the purchaser is Argentinean, he should perform the income tax withholding to the seller of the participation at the moment of making the payment for such transfer. The Argentine purchaser is responsible of the payment of IT corresponding to the foreign beneficiary and it will be considered as single and definitive payment.
In case the purchaser is also foreigner, the regulation places the responsibility to pay the IT generated in the transaction in head of the purchaser. However, it has not been ruled which mechanism should use the purchaser in order to pay the tax.
In July, 2017 AFIP enacted a General Resolution (“GR 4094”) in which set forth the mechanism of payment of IT in case both the seller and the purchaser are foreigners. Few days after the entry into force of the regulation, it was suspended until mid-January, 2018 (GR 4095) because of its (negative) impact mainly among stock brokers.
Finally, on January 11, 2018 AFIP enacted GR 4190 that repeals the mentioned GR 4094 so the issue discussed here remains without specific regulation.
In our opinion, while the payment mechanism remains aside the regulation, the IT should not be paid. It has been 4 years since the enactment of the law and the scenario in which both seller and purchaser are both foreigners has not been regulated.