Argentina: Financial income, foreign beneficiaries | KPMG | GLOBAL
close
Share with your friends

Argentina: Guidance on tax treatment of financial income earned by foreign beneficiaries

Argentina: Financial income, foreign beneficiaries

Guidance was published this week to implement certain measures from Argentina’s tax reform, enacted at the close of 2017.

1000

Related content

Decreto No. 279/2018 (9 April 2018) addresses the tax treatment of Argentine-source financial income earned by foreign beneficiaries, pursuant to the 2017 tax reform provisions.

Background

Under the 2017 tax reform, income derived by foreign beneficiaries—provided they do not reside in Argentina—and funds that do not originate from non-cooperative jurisdictions are tax-exempt if: 

  • Such income is derived from the sale of shares that are publicly traded in stock exchanges or stock markets under the supervision of the Argentine Securities and Exchange Commission (CNV). 
  • Such income is interest income or capital gains from the sale of public securities, negotiable obligations, and certificates of deposit of shares issued abroad that represent shares issued by entities domiciled or located in Argentina (i.e., ADRs). In the case of ADRs, the new rules confirm that the source of the income is determined by the place where the original issuer of the shares is located. 

Income from LEBACS (Argentine Central Bank notes) does not fall within this exemption.

 

Read TaxNewsFlash-Americas

Decreto No. 279/2018

Investment in LEBACs

The decree imposes a withholding tax on the earnings paid to foreign beneficiaries investing through LEBACs. Under this rule, if the creditor is a foreign banking or financial institution not based in “low tax” or no taxation countries, the applicable withholding tax rate will be 15.05% of earnings paid abroad. For foreign banking or financial institutions located in low tax or no tax jurisdictions, the applicable withholding tax rate will be 35% of earnings paid abroad.

Other investments

The decree provides that capital gains derived from the sale of investments of shares, government securities, corporate notes, debt securities, mutual fund shares, and other securities (including BitCoin and other cryptocurrencies) by a foreign beneficiary will be deemed to result in net income of 90% of the total amount of the transaction, taxed at the following effective rates:

  • Shares (that do not meet the exemption requirements), financial trust participation certificates, and shares in mutual funds—13.50% of the sales price or 15% of the net income 
  • Government securities, corporate notes, debt securities, shares in mutual funds not governed by the previous item, Bitcoin (and other cryptocurrencies), and other securities in foreign currency or including an adjustment clause—13.50% of the sales price or 15% of the net income
  • Government securities, corporate notes, debt securities, shares in mutual funds not governed by the previous item, Bitcoin (and other cryptocurrencies), and other securities in local currency, not including an adjustment clause—4.50% of the sales price or 5% of the net income

The above rates apply provided that the assets do not meet the requirements to be treated as tax-exempt assets (i.e., shares that are publicly traded in the Argentine Securities and Exchange Commission in instances of foreign investors that are not residents of low tax or no tax jurisdictions).

Who pays the tax?

The decree provides that the foreign beneficiary must pay the tax directly or through its legal representative located in Argentina. Guidance on how the tax is remitted to the Argentine authorities has not been issued.

Non-cooperative jurisdictions

For income of foreign beneficiaries located in non-cooperative countries or income derived through non-cooperative jurisdictions (i.e., low tax or no tax jurisdictions), a 35% tax rate applies to the capital gains derived by such foreign beneficiaries.

Underlying assets in mutual funds

Under existing regulations, income earned by foreign beneficiaries through mutual funds will, in certain situations, be treated as if the foreign beneficiary earned the income from the “predominant” underlying asset directly. The regulations provide that a mutual fund will be treated as holding a “predominant” asset:

  • When the same type of assets represents, at least, 75% of total investments in the fund; or
  • When 90% of investments are composed of shares or stock and/or securities or share certificates listed in the Argentine Stock Exchange (CNV).

For the rules to apply, such percentages must be met throughout the calendar year, and may only be lower for a maximum of 30 days (consecutive or not) during the year. 

Cooperative jurisdictions

Pending the issuance of regulations implementing the new transfer pricing rules, cooperative and non-cooperative jurisdictions are determined via a published list issued by the Argentine tax authorities. 

KPMG observation

Multinational companies holding Argentine financial instruments (e.g., securities, bonds, shares, mutual funds) need to consider how the 2017 tax reform and the new decree’s measures affect their investments in Argentina.

 

For more information, contact a tax professional with KPMG’s Latin America Markets Tax practice or with the KPMG member firm in Argentina:

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

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

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.

Connect with us

 

Request for proposal

 

Submit