Argentina: Abrogation Of The Tax On Dividends And Other Amendments Made To Tax Legislation: Benefits For Compliant Taxpayers

Law No. 27,260 (the "Law") entered into force on July 22, 2016, when it was published in the Official Gazette. By this Law, the Argentine Government established the "Voluntary and extraordinary disclosure regime of national and foreign currency holding and other assets, within Argentina and abroad" (Tax Amnesty) and the Moratorium for tax, social security and customs obligations. Both topics were commented in Marval News # 162. In this article, we will analyze some other central issues of the Law, related to:

  1. The granting of some tax benefits for compliant taxpayers.
  2. The amendments made to the Personal Assets Tax ("PAT").
  3. The abrogation of Tax on the distribution of dividends or profits and other amendments made to Income Tax ("IT").
  4. The abrogation of Tax on Presumed Minimum Income ("TPMI") as from January 1, 2019.

1. Tax benefits to compliant taxpayers

Chapter III of Title II of the Law set forth certain tax benefits fortaxpayers who had complied with all their obligations during the 2014 and 2015 tax periods, provided they meet the following requirements: (i) they had not adhered to the Tax Amnesty established by Law No. 26,860 or any other instalment plan or moratorium granted by the Argentine Tax Authorities; (ii) they do not have any tax debt currently being executed by the Argentine Tax Authorities; and (iii) they have notbeen subject to an execution proceeding initiated by the Argentine Tax Authorities or condemned (by a final and not subject to appeal ruling) for any penalty related to tax fraud in the 2014 and 2015 tax periods.

The benefits granted by the Law are:

  1. Exemption of the PAT for the 2016, 2017 and 2018 tax periods. The exemption includes the PAT applicable on shares and other equity participations in local companies, which is paid by the local company itself.
    The advance payments of PAT for the 2016 tax period made until the date on which the taxpayer invokes the benefit will be reimbursed or offset against another tax.
  2. If the compliant taxpayers are not affected by the benefit described above (e.g. because they are not PAT taxpayers), they will be benefited with an exemption of the applicable Income Tax on the first instalment of the supplementary annual salary paid in July 2016.

The deadline to qualify for these benefits is March 31, 2017.

2. Amendments made on Personal Assets Tax (PAT)

PAT 1 applies on the assets of individuals as of December 31 of each year, under the following considerations: (i) individuals domiciled in Argentina are subject to the tax upon their worldwide assets; (ii) individuals not domiciled in Argentina are only liable for this tax upon their assets located in Argentina; and (iii) shares and other equity participations in Argentine companies which belong to individuals domiciled in Argentina or to individuals or entities domiciled abroad are also subject to PAT, but the tax must be paid by the Argentine company itself.

Chapter IV of Title II of the Law set forth major amendments on the PAT applicable for the current tax period and the subsequent periods.

For individuals domiciled in Argentina, the new tax scheme will be as follows:

Tax period 2016

Value of the total assets 2

Tax treatment

Less or equal to AR$ 800,000

Non-taxable.

Higher than AR$ 800,000

Taxed at a tax rate of 0.75% on the value of the total assets that exceeds AR$ 800,000.

 

Tax period 2017

Value of the total assets

Tax treatment

Less or equal to AR$ 950,000

Non-taxable.

Higher than AR$ 950,000

Taxed at a tax rate of 0.50% on the value of the total assets that exceeds AR$ 950,000.

 

Tax period 2018 and subsequent periods

Value of the total assets

Tax treatment

Less or equal to AR$ 1,050,000

Non-taxable.

Higher than AR$ 1,050,000

Taxed at a tax rate of 0.25% on the value of the total assets that exceeds AR$ 1,050,000.

Individuals not domiciled in Argentina will only be liable for the PAT upon their assets located in Argentina at a fixed rate of: (i) 0.75% for tax period 2016; (ii) 0.50% for tax period 2017; and (iii) 0.25% for tax period 2018 and subsequent periods.

Finally, the PAT applicable on shares and other equity participations in Argentine companies will be paid by the local company itself with a rate of 0.25% on the net worth value of the company for tax period 2016 and the subsequent periods.

3. Abrogation of the Tax on the distribution of dividends or profits and other amendments made to Income Tax (IT)

Section 75 of the Law abrogated the so-called "Tax on the distribution of dividends or profits", which had been established in 2013 by Law No. 26,893 3 through the amendment of Section 90 of the Income Tax Law (No. 20,628).

This tax was levied on the distribution of dividends or profits (in cash or in kind) made by Argentine companies, Argentine trusts or Argentine branches to Argentine resident individuals or to non-Argentine residents, at a special tax rate of 10%, and by way of withholdings made by the Argentine entity at the time of the payment of such profits.

The Law did not establish a special term for the abrogation of this tax. Therefore, in principle, it should be deemed abrogated from the entry into force of the Law.

In addition, pursuant to section 73, income derived from exchange differences resulting from updating credits of any origin or nature which would constitute income of foreign source are exempt for individuals.

Finally, section 74 established the method to estimate the cost of depreciable movable assets, real estate, intangible assets, shares or equity participations and bonds in case of transfer of ownership of such assets, to assess the taxable income with respect to corporate tax. Such cost must be estimated in the currency of the country where such assets are located or used and for tax purposes such value must be converted to AR$ at the selling exchange rate used by the Banco de la Nación Argentina for the date on which the transfer of ownership of such assets takes place.

4. Abrogation of the Tax on Presumed Minimum Income (TPMI)

Finally, section 76 of the Law abrogated the TPMI 4 for the tax year starting January 1, 2019.

TPMI applies to all assets of Argentine companies, other entities (such as Argentine trusts, common investment funds and permanent establishments of foreign entities) and rural real estate which belongs to individuals domiciled in Argentina.

The tax only applies if the total value of the assets exceeds AR$ 200,000 at the end of the entity's financial year. In this case, the total value of the assets will be taxed at the rate of 1%.

Normal corporate IT is allowed as a payment on account of this tax. Moreover, any tax payable under the TPMI is allowed as a credit against normal corporate IT for the following ten years.

Footnotes

1 Established by Law No. 23,966.

2 Excluding shares and other equity participations in Argentine companies.

3 Published in the Official Gazette on September 23, 2013.

4 Established by Law No. 25,063.

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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