Guidance was published this week to implement certain measures from Argentina’s tax reform, enacted at the close of 2017.
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.
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:
Income from LEBACS (Argentine Central Bank notes) does not fall within this exemption.
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.
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:
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).
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.
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.
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:
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.
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.
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 | firstname.lastname@example.org
Alfonso A-Pallete | +1 (305) 913-2789 | email@example.com
Rodolfo Canese | +(5411) 4316-5753 | firstname.lastname@example.org
Violeta Lagos | +(5411) 4316-5740 | email@example.com
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