Uruguay current lacks specific rules addressing the tax treatment of derivative financial instruments. Legislation currently being considered by Uruguay’s Parliament would address the uncertainty as to how income generated by such financial instruments is to be treated for tax purposes, by defining the type of instruments subject to the new rules and by providing source rules for income generated by derivative instruments.
Accordingly, the pending legislative measures would be relevant to multinational corporations that issue or hold derivative financial instruments.
Given the widespread use of derivative financial instruments and the interpretative issues raised by the absence of specific tax rules, the proposed legislation seeks to establish rules governing the treatment of these derivative instruments for Uruguayan tax purposes. The proposed law defines “derivative financial instruments” as contracts under which the parties to the contract agree to future transactions based on one or more underlying assets—such as future contracts, forward contracts, swaps, options, or similar instruments, or any combination of these, as further clarified or defined under regulations to be issued.
A general rule provided by the legislation would be that the income generated by derivative financial instruments that accrue to a corporate income tax (IRAE) or individual (personal) income tax (IRPF) taxpayer (applicable, respectively, to resident legal entities and individuals) would be considered Uruguayan-source income subject to tax in Uruguay. The proposed law also would provide that income generated by derivative instruments that accrue to a non-resident income tax (IRNR) taxpayer would be considered foreign-source income not subject to tax in Uruguay.
Losses generated by the instruments would be deductible provided that the counterparty or intermediary to the transaction is not an entity constituted or located in a “low tax” jurisdiction, or that benefits from a low tax regime.
The proposed law also would establish that income or loss generated by the derivative instrument would be computed at the moment when the derivative instrument is “settled” (understood to be the time of payment, assignment, sale, compensation, or due date).
For more information, contact a tax professional with KPMG’s Latin America Markets practice or with the KPMG member firm in Uruguay:
Alfonso A-Pallete | +1 (305) 913 2789 | email@example.com
Luis A. Aisenberg | + 598 290 24546 | firstname.lastname@example.org
Gustavo Melgendler | + 598 290 24546 | email@example.com
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