Argentina: Personal Assets Tax Amendments - Giving Foreign Investors Another Push Out the Door

Last Updated: 23 May 2002

Written by Mr Guillermo O. Teijeiro & Mr Leandro Passarella

Originally published in Argentine Business Law Watch, 21 May, 2002

While attention has been focused on foreign exchange controls and bankruptcy code amendments, the Argentine government went about broadening the personal assets tax base. On May 15, 2002, Congress amended the personal assets tax law1. This memorandum briefly describes the amendments and outlines the current legal response. The text of the amendments can be found at

The Amendments at a Glance

The amendments fundamentally change the Argentine tax on personal assets. One change involves enlarging the tax base by including within the tax all equity investments by foreign legal (corporate) persons in Argentine entities (such investments held by resident and non resident natural persons are already subject to the tax). The amendments do not extend the tax to Argentine corporate persons, who continue to be exempt from the personal assets tax on their foreign and domestic assets. The amendments will apply to equity investments held as of December 31, 2002.

In its original form, the personal assets tax was conceived as a tax on the wealth of natural persons2. Until last week, the tax applied to real and personal property held by individuals as of December 31st of each year in excess of Ps. 102,300 at progressive rates3. Each of these original concepts has been affected by the amendments.

The amendments distinguish between equity investment assets and other assets. Equity investment assets of all foreign entities and resident natural persons are now subject to the tax at a rate of 0.5%. Moreover, for such assets, the exemption threshold of Ps. 102,300 does not apply. For all other assets the tax continues to apply to individuals, though only on amounts exceeding the threshold.

As amended, the equity holdings of a taxpayer will be assessed on such taxpayer's proportionate share in the Argentine companies' net worth (valor patrimonial proporcional) at the end of each fiscal year. The amendments furnish a valuation method for equity interests in corporations but offer no guidance on the method applicable to holdings in other entities (e.g., limited partnerships). Nonetheless, it is likely that the proportionate interest method will also apply in this case, as this method was established for calculating individual holdings prior to the amendments. The amendments prompt the issue of whether an investor’s irrevocable capital contribution is included in the determination of net worth for purposes of determining the tax.

Payment by the "Substitute Taxpayer"

How will non-resident foreign persons be assessed? The amendments address this practical obstacle by shifting the payment responsibility away from the taxpayer and charging the Argentine entity subject of the foreign investment with the obligation to pay the tax on behalf of its investors. The amendments entitle the Argentine entity to seek reimbursement of the tax from the investor. The amendments do not offer guidance on how the Argentine entity can actually seek reimbursement. One may envision a withholding from dividends but in the current economic situation that is an unlikely resource.

Raising Taxes, Discouraging Investment

While increasing tax revenues in 2003, the amendments add another cost to foreign investment. Further, absent a viable means for reimbursement, the tax will further burden the Argentine entity. At a time when foreign investment is already retreating from Argentina, the amendments add another push out the door.

In the meantime, we have been evaluating for clients means to ameliorate or negate the effect of the tax. A good start is Argentina's tax treaty network to determine whether it shields foreign investors from the tax on investment. Of Argentina's 18 tax treaties, only those with Italy, Germany (with respect to equity holdings not represented by shares), Norway, Spain and Switzerland (with respect to corporate shares) offer foreign investors clear protection from an investment tax like that implemented by the amendments. The remaining 14 treaties allow—more or less clearly—Argentina to levy the tax4.

Nonetheless, foreign investors might protect their investments in Argentine companies by resorting to Argentina's bilateral investment treaties (BITs). BITs generally aim to protect foreign investors from unjustified expropriation. It may not be too much of a stretch to argue that the tax, which applies to foreign but not Argentine legal persons, effects an indirect or "creeping" expropriation of investment in Argentina. Still, such a claim would be successful only to the extent that investments are deemed "confiscated." Unfortunately for those who may challenge the tax, the amendments may only qualify as an example of government shortsightedness.

1 Law No. 25,585, published on May 15, 2002.

2 The personal assets tax presumes that Argentine individuals are the beneficial owners of assets held by certain offshore entities with assets in Argentina and applies a punitive tax rate of 1.5% to such assets. The amendments eliminate the increased rate with respect to equity interests in Argentine companies. In the interest of brevity we have omitted discussion of this aspect of the amendments.

3 For assets other than equity investments, the tax applies at a 0.5% rate on the first Ps. 200,000 over the threshold. For the remaining taxable amount, the rate steps up to 0.75%.

4 Tax treaties with Australia, Brazil and Sweden do not provide for rules applicable to the taxation of capital. Treaties with Belgium, Canada, Denmark, Finland, the Netherlands and the United Kingdom allow Argentina to tax capital within in its sovereign territory. Pursuant to the Argentine personal assets tax law, equity holdings in Argentine companies are deemed located in Argentina.

If you have any questions or comments concerning the above or any other Argentine tax matter, please do not hesitate to contact Guillermo O. Teijeiro or Leandro M. Passarella by telephone at (54-11) 5556-8000, via facsimile at (54-11) 4328-5628.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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