Comparative Guides

Welcome to Mondaq Comparative Guides - your comparative global Q&A guide.

Our Comparative Guides provide an overview of some of the key points of law and practice and allow you to compare regulatory environments and laws across multiple jurisdictions.

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4. Results: Answers
Corporate Tax
Are there anti-avoidance rules applicable to corporate taxpayers – if so, are these case law (jurisprudence) or statutory, or both?

Answer ... Law 11,683 includes the ‘economy reality’ principle as a general anti-avoidance rule, under which the tax authorities can analyse the economic taxation in each case and disregard the legal form and structured used by the taxpayer.

According to the Double Taxation Convention (DTC) between Argentina and Chile, dividends paid by a company are taxable only in the country of domicile (this treaty was modified by Law 27,274 on 7 September 2016). In other words, through the treaty, each country waived its tax authority over foreign-source income; its power of taxation is thus limited to income originated by subjects domiciled in their respective jurisdictions.

Molinos Río de la Plata v AFIP, a case which is pending before the National Supreme Court, arose from the tax reform introduced by Law 19,840. This incorporated in Section 41D of the Income Tax Law a preferential tax regime whereby an incentive was made available to foreign investors to canalise their investments abroad through ‘investment platform companies’, thus exempting them from paying taxes on dividends derived from investments made in other jurisdictions.

The Argentina Tax Department (AFIP) argued that a platform company established in Chile by Molinos had as its main and only interest the canalisation of income from group companies in order to benefit from the advantages enshrined in the DTC. Molinos argued that there was no divergence between the adopted form and the economic reality: the platform company had been established pursuant to a business decision made within the framework of freedom of commerce, which allows for a business to be structured in the way deemed most convenient within the framework of the law.

The principles of interpretation enshrined in Sections 1 and 2 of Law 11,683 (fiscal procedure) are established as anti-avoidance norms of double tax agreements.

The Argentina Tax Court decided in favour of AFIP. It held that most of the dividends received by the platform company were directly remitted to its parent company in Argentina. Likewise, the holding company never received dividends from Molinos Chile SA – these being the only dividends that would have been subject to income tax in Chile, as they were of Chilean source. There was thus an abuse of the treaty, as if the dividends obtained by companies incorporated in third countries were remitted directly to the Argentine company, those dividends would be subject to Argentine income tax. For this reason – there being no obstacle in the application of the anti-abuse clauses of the domestic legislation – the National Appellate Court held that it was appropriate to ignore the application of the DTC with Chile in this specific case.

The lack of a real economic link between the Chilean platform company and several Uruguayan companies and a Peruvian society was highlighted. Rents remitted did not remain in the patrimony of the holding company and were not used to fulfil its social object. On the contrary, they were immediately remitted to the majority shareholder in Argentina, so that the Chilean holding acted as a mere conduit; the real beneficiary was Argentine company Molinos.

Molinos has appealed and a decision is awaited from the National Supreme Court.

For more information about this answer please contact: Francisco Blanco from JP O'Farrell Abogados S.A.
What are the main ‘general purpose’ anti-avoidance rules or regimes, based on either statute or cases?

Answer ... See question 5.1.

For more information about this answer please contact: Francisco Blanco from JP O'Farrell Abogados S.A.
What are the major anti-avoidance tax rules (eg, controlled foreign companies, transfer pricing (including thin capitalisation), anti-hybrid rules, limitations on losses or interest deductions)?

Answer ... In Argentina, the ‘economic reality’ principle is incorporated in Section 1 (for interpretation of the tax code) and Section 2 (which allows for the legal structure of an act to be dispensed with in order to reflect the economic and effective intention of the taxpayer) of Law 11,683.

Section 1 provides: “in the interpretation of the provisions of this law or of the tax laws subject to its regime, the purpose of them and their economic significance will be considered ...”.

Section 2 provides: “to determine the true nature of the taxable event will be addressed to the acts, situations and economic relationships that are actually carried out, pursued or established by the taxpayers.”

Thus, the actual legal forms or structures used may be disregarded in considering the actual taxable event, and the real economic situation will be considered in the light of the economic and effective intention of the taxpayer.

In Kellogg Company Argentina SACIYF (CSJN - 26/2/1985), the Brazilian Supreme Court stated that the principle of economic reality is applicable to both the Treasury and the taxpayer.

In San Buenaventura SRL c / DGI (CSJN - 23/5/2006), the Brazilian Supreme Court confirmed that the basic principle enshrined in Section 2 – whereby the actual legal structure used can be set aside and replaced with one that reflects the true intention of the parties – is limited to cases in which the legal structure adopted is inadequate to achieve the real intention. That is, the legal relationship established between the parties cannot be ignored, on the basis that it does not correspond to the economic reality, if it is not demonstrated that the agreement is not adapted to reality or is manifestly inadequate to reflect the effective intention of the parties. In other words, if AFIP cannot prove this inadequacy, it must respect the agreement between the parties.

The principle of economic reality is also applicable in the presence of a DTC (as is evident in the Molinos case discussed in question 5.1) , although it is not expressly recognised in the text of the treaty. The rule will become operative only in case of ‘simulation of the legal business’ and given its status as a long-established principle of the tax system. It was acknowledged by all contracting states at the time of signing of the respective double tax treaties, none of which has imposed any explicit or implicit restrictions on its application.

For more information about this answer please contact: Francisco Blanco from JP O'Farrell Abogados S.A.
Is a ruling process available for specific corporate tax issues or desired domestic or cross-border tax treatments?

Answer ... Recently, an amicable procedure by mutual agreement was incorporated into Argentine law for countries with which double tax treaties have been concluded, which allows for the appointment of representatives of the two tax administrations in order to resolve any disagreements on tax matters that may arise between them.

Such disagreements include cases of double taxation, as well as divergence in the interpretation and application of tax treaties.

The inclusion of these norms relates to Action 14 of the Base Erosion and Profit Shifting (BEPS) initiative, which aims to make dispute resolution mechanisms more effective.

For more information about this answer please contact: Francisco Blanco from JP O'Farrell Abogados S.A.
Is there a transfer pricing regime?

Answer ... Yes. The most important is the so-called ‘Sixth Method’, adopted pursuant to the principles recently developed under Action 10 of the BES) initiative and integrated within the Organisation for Economic Co-operation and Development guidelines for commodity transactions. The prior Argentine measures included a mandatory method whereby the price was considered as of the shipment date in certain commodity export transactions. The new rules include provisions which require, in the case of exports of commodities where an international intermediary is involved, that the Argentine taxpayer – in addition to complying with the substance test described above – register with the local tax authorities the written agreements in which the price and other conditions of the export have been determined. In the case of failure to register, the pricing of the transaction will be determined based on the price at the shipment date.

Low-tax jurisdictions: The transfer pricing rules apply not only to related-party transactions, but also to transactions when the counterparty is located in a jurisdiction considered to be ‘non-cooperative’. There is also a new concept of ‘low-tax jurisdictions’, whereby transactions involving parties in these jurisdictions are subject to transfer pricing scrutiny. A regime has also recently been introduced whereby taxpayers can request the conclusion of a ‘joint determination of prices of international operations’ with AFIP, in order to determine the applicable criteria and methodology for the determination of prices, amounts of considerations or profit margins of transactions related to the transfer pricing regime.

Intermediary substance test: For imports and exports of goods where an international intermediary is involved, there is a new requirement whereby the Argentine taxpayer must demonstrate that the compensation paid to that intermediary is aligned with the functions, assets and risks involved in the transactions. This provision will apply when:

  • the intermediary is a related party of the Argentine taxpayer; or
  • the foreign counterparty in the transaction is a related party of the Argentine taxpayer.

For more information about this answer please contact: Francisco Blanco from JP O'Farrell Abogados S.A.
Are there statutory limitation periods?

Answer ... Under Law 11,683, the statutory limitation period is five years, computable from 1 January of the year following the expiration of the obligation to enter the tax.

For more information about this answer please contact: Francisco Blanco from JP O'Farrell Abogados S.A.