Argentina: Income tax treaty with Switzerland

Argentina: Income tax treaty with Switzerland

The exchange of diplomatic notes relating to an income tax treaty between Argentina and Switzerland occurred 28 October 2015, meaning that the treaty will enter into force within 30 days—that is, the entry into force will be in November 2015.

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As explained below, the treaty provides royalties will be subject to taxes withholding, and shares of Argentine companies owned by Swiss shareholders will be subject to Argentina’s wealth tax. The treaty also includes new exchange of tax information provisions.

Effective date provisions

The provisions of the Argentina-Switzerland income tax treaty, once it enters into force, will be effective:

  • Retroactively as of 1 January 2015—for taxes “withheld at source”
  • As of 1 January 2016—for taxes on other income, wealth tax, and the exchange of information provisions

Background

Argentina and Switzerland first agreed to a tax treaty in April 1997, and while that treaty was “provisionally” in force beginning in 2001, it was never officially ratified and eventually expired in 2012. The Argentine Congress never completed its ratification of the 1997 treaty because a clause in that treaty only allowed taxation by Argentina as the source state if Switzerland also taxed royalties paid to nonresidents. Under Swiss law, no withholding tax would apply to payments of royalties made to nonresidents. Accordingly, the 1997 treaty effectively prohibited Argentina from taxing Argentine-source royalties.

Withholding tax provisions

The Argentina-Switzerland income tax treaty provides the following withholding tax rates:

  • Dividends—10% withholding tax rate when ownership is greater than 25%; 15% if the ownership stake is less than 25%
  • Interest—12% withholding tax rate;  0% if the interest is paid with respect to indebtedness arising from the sale of any industrial machinery or equipment
  • Royalties—3%, 10% or 15% withholding tax rate, depending on the type of royalty payment (for example, payments made for the use of intangibles, software licenses, know-how or technical assistance)
  • Capital gains—10% withholding tax rate if the ownership stake in the capital investment is 25% or more; 15% withholding tax rate in all other instances

Wealth tax

The treaty does not provide relief from the Argentine wealth tax for Swiss shareholders. Swiss shareholders will be subject to the standard wealth tax rate of 0.5% on their investment in Argentine entities.

Other provisions

The treaty’s non-discrimination clause concerning the deduction of interest, royalties, and other expenses provides relief with respect to the deduction of certain expenses.

The treaty’s exchange of information clause allows the two governments to obtain financial information “upon request.”

Lastly, the treaty includes “specific residence” provisions, measures for the elimination of double taxation, and permanent establishment provisions.

 

For more information, contact a tax professial with KPMG’s Americas Center:

Devon Bodoh | +1 (202) 533-5681 | dbodoh@kpmg.com

Alfonso A-Pallete | + 1 (305) 913-2789 | apallete@kpmg.com

 

Or contact a KPMG tax professional in Argentina:

Rodolfo Canese | (5411) 4316-5753 | rcanese@kpmg.com.ar

Violeta Lagos | (5411) 4316-5740 | vlagos@kpmg.com.ar

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

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