As a member of the G20, Argentina supports the goals of the OECD’s Action Plan and intends to follow the recommendations that result.
No significant legislative changes have been adopted to date in direct response to the OECD’s work, but the country has taken steps to address perceived international tax avoidance through domestic measures. Argentina’s new president took office in December 2015, and tax reform is expected, although the timing is uncertain.
In recent years, companies in Argentina have faced increasing audit activity from the tax authorities at all jurisdictional levels, and international transactions are in focus. In particular, transfer pricing and thin capitalization transactions have attracted scrutiny. More recent tax audit activity has targeted imports and treaty shopping.
Argentine tax authorities are becoming more inclined to challenge tax-motivated transactions and structures on the basis of ‘substance over form’. The principle is embedded in Argentina’s Tax Procedures Act, and Argentine tax authorities apply it broadly to disregard the legal form of an arrangement and apply tax on the basis of the form or structure that best reflects the taxpayers’ actual intention.
Tax avoidance involving tax treaties has received particular attention. In 2011, an Argentine government commission reviewed the country’s tax treaty network to determine whether there was potential for abuse. The following year, Argentina unilaterally terminated its tax treaties with Switzerland, Spain and Chile, mainly to eliminate the Argentine wealth tax exemption and also to address perceived potential for abuse regarding withholding taxes on royalties and inappropriate use of conduit companies and other areas, depending on the treaty.
Argentina recently signed new treaties with Spain and Switzerland, and talks toward a new treaty with Chile have commenced. In addition to eliminating the potential for abuse, the new Swiss and Spanish treaties incorporate the current international standard regarding the automatic exchange of tax information.
The new treaty with Switzerland provides for reduced withholding rates on dividends, interest, royalties and capital gains. It also provides for the exchange of information on request (Article 25). The treaty is still to be ratified by both governments and is expected to enter into force in 2016.
Argentina has replaced its black list of tax havens with a white list of ‘cooperative’ countries, for transparency purposes. A 2013 decree1 established that, for all purposes of Argentine income tax law and regulations, any reference to ‘jurisdictions with low or null taxation’ is understood to refer to jurisdictions not considered to be ‘cooperative for the purposes of tax transparency’. Cooperative jurisdictions are those that have entered into or are negotiating a tax treaty or exchange of information agreement with Argentina. Accordingly, countries and territories that are not on the white list are considered countries with low tax or no taxation – tax haven jurisdictions. The white list is periodically updated and posted on the Argentine tax authorities’ website.2
The income tax law also sets out special provisions for transactions between Argentine taxpayers and parties in non-cooperative countries (formerly ‘tax havens’). These include:
In addition, Argentine procedural tax law applies a presumption that deems amounts received by a local party from a non-cooperative jurisdiction to be an increase in assets not justified by the local party. The law therefore subjects the local party to income tax and value added tax on a taxable base of 110 percent.
Argentina’s tax administration issued a resolution3 in January 2014 establishing a withholding regime for the export of goods where the final destination is different from the buyer’s country of residence. This rule relates to transfer pricing and aims to address some harmful practices that affect Argentine taxation. The tax applies at the rate of 0.5 percent on the value used for customs duties – and at 2 percent on the customs value used for exports billed to non-cooperative jurisdictions.
Argentine tax authorities are also making efforts to gather more information concerning taxpayers’ transactions with related parties either located in Argentina or abroad. In 2013, Argentina issued new tax information reporting requirements. Among other things, this guidance introduced a new system for registering contracts entered into by Argentine taxpayers with foreign entities and for reporting certain financial statements.4 The rule applies to specific types of entities or investment vehicles conducting business operations in Argentina that involve cross-border transactions, effective 3 January 2014.
Given the Argentine tax authorities’ focus on substance over form, foreign companies doing business there should be sure to have a sound, well-documented business purpose for their business structures and transactions. In many litigated tax disputes that have reached the country’s Supreme Court, taxpayers that have been able to demonstrate the business substance of their arrangements have been more likely to achieve a favorable outcome.
1Decree No. 589/2013, dated 27 May 2013.
3Resolution No. 3577
4Resolución General N° 3573/13