Tax on corporate transactions in Argentina: overview

A Q&A guide to tax on corporate transactions in Argentina.

The Q&A gives a high level overview of tax in Argentina and looks at key practical issues including, for example: the main taxes, reliefs and structures used in share and asset sales, dividends, mergers, joint ventures, reorganisations, share buybacks, private equity deals and restructuring and insolvency.

To compare answers across multiple jurisdictions, visit the Tax on corporate transactions Country Q&A tool.

The Q&A is part of the Multi-jurisdictional Guide to Tax on Transactions. For a full list of jurisdictional Q&As visit www.practicallaw.com/taxontransactions-mjg.

Gabriel Gotlib and Walter Keiniger, Marval, O'Farrell & Mairal
Contents

Tax authorities

1. What are the main authorities responsible for enforcing taxes on corporate transactions in your jurisdiction?

The main authority responsible for enforcing federal taxes on corporate transactions in Argentina is the Federal Public Revenue Administration (Administración Federal de Ingresos Públicos) (AFIP).

AFIP is the agency that enforces the tax and customs policy. The agency has, among other things, the following tasks and functions:

  • To enforce, collect and control taxes under the provisions of the relevant statutory rules.

  • To levy taxes on the transactions performed in the territory and jurisdictions where the national tax authority is entirely or partially empowered to exercise such power.

  • To levy taxes on imports and exports of goods and other transactions governed by the relevant customs rules and laws.

  • To impose fines, interest, and so on, that arise from the enforcement and fulfilment of the statutory rules.

  • To control international trade under the provisions of the relevant statutory rules.

Corporate transactions can also be subject to local taxes (for example, turnover tax, stamp tax, and so on), which are applied by the Argentine provinces and by the City of Buenos Aires. Each of these regions has its own local tax authority in charge of the enforcement of applicable taxes.

 

Pre-completion clearances and guidance

2. Is it possible to apply for tax clearances or obtain guidance from the tax authorities before completing a corporate transaction?

For federal taxes, there is a system of binding consultation (Consulta Vinculante), which taxpayers can utilise when in doubt about their tax obligations. However, certain subjects, such as issues in connection with double tax treaties, are not within the scope of the regime and the AFIP would not provide an answer on these matters.

The ruling of a binding consultation must be followed both by the taxpayer and the AFIP, although the latter can change its ruling by notifying such change to the taxpayer regarding their future obligations. Taxpayers are allowed to appeal the ruling of a binding consultation where they disagree with the outcome.

Taxpayers can also conduct non-binding consultations, though these rulings do not bind the AFIP. However, where the taxpayer follows a non-binding ruling and the AFIP challenges the taxpayer's position, it is unlikely that a fine will be imposed.

 

Main taxes on corporate transactions

Transfer taxes and notaries' fees

3. What are the main transfer taxes and/or notaries' fees potentially payable on corporate transactions?

Income tax - capital gains

Local entities are subject to income tax on a net basis at a flat rate of 35%. Therefore, any sale of shares or other equity participations will be subject to a 35% tax on the difference between the the price obtained and the tax basis (that is, the cost of the shares or equity participations).

Gains from the sale of shares in local companies are exempt from income tax where the gains are made by foreign beneficiaries.

Stamp tax

Stamp tax is a local tax levied on public or private instruments, either:

  • Executed in Argentina.

  • Executed abroad, where their effects occur in one or more local jurisdictions within Argentina (that is, the Argentine provinces and the City of Buenos Aires).

The definition of "effects" varies under the different local tax codes. However, most codes include within the definition the fulfilment of obligations or the performance of activities within the relevant region. Further, if the assets involved in an agreement are located in a particular local region, that agreement is generally understood as having effect in that local region. This tax is calculated on the economic value of the agreement. The rate varies from region to region, but it is usually around 1%.

Share or other equity participations are generally understood to be located in the jurisdiction where the relevant company is incorporated (and therefore, any agreement to transfer them is understood to produce effects in the jurisdiction where the relevant company is incorporated). Therefore, corporate transactions transferring shares or equity participations in Argentina are generally subject to stamp tax.

Stamp tax is charged on the document which is subject to the tax (the "instrument"). Therefore, if a transaction is agreed as a result of an offer made by one party, which the other party simply tacitly accepts (for example, by making a payment of the price proposed by the offeror), then no instrument is created that can be subject to stamp tax, and stamp tax cannot be charged. Corporate transactions agreed in this way are not subject to stamp tax.

Tax-free reorganisations

Under Argentine law, local mergers, spin-offs and transfers within the same economic group are considered to be tax-free reorganisations if they comply with certain requirements, including the following:

  • Continuance of the activity for at least two years.

  • Maintenance of a percentage of the capital of the surviving entities for at least two years.

  • Communication to the AFIP of the reorganisation.

Corporate transactions can therefore be achieved on a tax-free basis to the extent that they comply with the requirements under the applicable laws and regulations concerning reorganisations.

 

Corporate and capital gains taxes

4. What are the main corporate and/or capital gains taxes potentially payable on corporate transactions?
 

Value added and sales taxes

5. What are the main value added and/or sales taxes potentially payable on corporate transactions?

Value added tax (VAT)

This tax applies to:

  • The sale of goods.

  • The provision of services.

  • The importation of goods.

Under certain circumstances, services rendered outside Argentina which are effectively used or exploited in Argentina are deemed rendered in Argentina and are therefore subject to VAT.

VAT is paid at each stage of the production or distribution of goods or services upon the value added during each of the stages. Therefore, this tax does not have a cumulative effect.

The tax is levied on the difference between the "tax debit" and the "tax credit".

The "tax debit" is the tax corresponding to sales made by the taxpayer or services rendered by him. It is obtained by applying the tax rate to the price of those sales or services.

The "tax credit" is the tax indicated in the invoices of the suppliers of goods or services contracted by the taxpayer.

The difference between the "tax debit" and the “tax credit", where it is positive, constitutes the amount that must be paid to the tax authorities. The current general rate for this tax is 21%. However, sales and imports of capital goods are subject to VAT at a lower tax rate of 10.5%.

Since exports of goods are subject to VAT at a 0% rate, exporters can utilise or recover the VAT charged to them as a "fiscal credit", provided that VAT is actually connected to any stage of the production or sale of the exported goods.

VAT does not apply to the transfer of shares or equity participations, but does apply to the transfer of movable assets (for example, inventory).

 

Other taxes on corporate transactions

6. Are any other taxes potentially payable on corporate transactions?

Turnover tax (tax on gross income)

Turnover tax is a local tax levied on gross income. Each province and the City of Buenos Aires apply different tax rates, though most provinces apply the following rates:

  • 1% rate on agricultural, cattle raising and mining activities.

  • 1.5% on industrial activities.

  • 3% on trade or services in general.

  • 5.5% on financial activities.

The tax is levied on the amount of gross income resulting from business activities carried on within the respective province or the City of Buenos Aires. The provinces and the City of Buenos Aires apply the Multilateral Agreement to avoid the double taxation of activities performed in more than one jurisdiction. Under this agreement, gross income is allocated between the different jurisdictions, applying a formula based on income obtained and expenses incurred in each of them.

The sale of shares in Argentine corporations is generally exempt or beyond the scope of this tax. The sale of fixed assets is also generally beyond the scope of this tax.

Tax on credits and debits in bank accounts

This tax is levied upon debits and credits in Argentine bank accounts and upon other transactions which, due to their special nature and characteristics, are similar to, or could be used in substitute of, a bank account (for example, payments on behalf of, or in the name of, third parties, drafts and transfers of funds made by any means, and so on).

The tax law and its regulations provide several exemptions to this tax. For example, it does not apply to debits and credits relating to:

  • Salaries.

  • Retirement and pension emoluments.

Credits relating to these payments made directly by banking means, and withdrawals made in connection with these credits, are not subject to the tax.

The general tax rate is 0.6%. An increased rate of 1.2% applies in cases where there has been the substitution of a banking account. This tax can be partially used as a credit against the liability for income tax and the tax on minimum presumed income. The amount considered as a credit is not deductible for income tax purposes.

Any debit or credit taking place in an Argentine bank account in connection with a corporate transaction (for example, the collection of the purchase price in a stock sale transaction) can be subject to this tax.

 

Taxes applicable to foreign companies

7. In what circumstances will the taxes identified in Questions 3 to 6 be applicable to foreign companies (in other words, what "presence" is required to give rise to tax liability)?

Argentine-source income obtained by foreign companies is subject to income tax and must be withheld by the local payer of such income. However, gains obtained by foreign companies which are derived from the sale of shares in Argentine companies are exempt from tax in Argentina.

If a foreign company executes an agreement referencing a corporate transaction (for example; a stock purchase agreement) in an Argentine province or in the City of Buenos Aires, stamp tax will apply unless the relevant legislation provides for an exemption. Further, even where the agreement is executed abroad, if that agreement has effects in any Argentine province or the City of Buenos Aires, stamp tax will apply unless an exemption is applicable. If a foreign company collects any amount in, or transfer funds from, an Argentine bank account, the tax on credits and debits in bank accounts will also apply.

 

Dividends

8. Is there a requirement to withhold tax on dividends or other distributions?

In general, dividends and branch remittances are not subject to tax. However, if the amount of a dividend distribution or a profit remittance exceeds the after-tax accumulated taxable income of the payer (determined in accordance with the income tax law rules), a withholding tax rate of 35% (equalisation tax) is imposed on any excess. The 35% withholding applies on dividends paid above the taxable income obtained by the corporation. If dividends are paid above that amount of taxable income (of the entity), the law assumes that the excess (obtained by the shareholder as a dividend) was not subject to tax and therefore the 35% withholding is triggered. That rate may be reduced if a double tax treaty applies. Generally, these treaties reduce the withholding applicable to dividend payments to 10% or 15% to the extent certain requirements are met.

Dividends can be lawfully declared and paid to shareholders only out of the company's earned and liquid net profits arising from a year-end audited balance sheet which has been duly approved by the annual shareholders' meeting.

Interim dividends can be declared and paid in certain cases. For example, listed companies and companies with capital exceeding the sum of ARS10 million can pay interim dividends (as at 1 March 2012, US$1 was about ARS4.4).

 

Share acquisitions and disposals

Taxes potentially payable

9. What taxes are potentially payable on a share acquisition/share disposal?

Several taxes can be payable on a share acquisition/share disposal, such as income tax and stamp tax (see Question 3), and turnover tax and tax on debits and credits in bank accounts (see Question 6).

 

Exemptions and reliefs

10. Are any exemptions or reliefs available to the liable party?

Gains obtained by foreign companies from the sale of shares in Argentine companies are exempt from income tax (see Question 3, Income tax – capital gains).

 

Tax advantages/disadvantages for the buyer

11. Please set out the tax advantages and disadvantages of a share acquisition for the buyer.

Advantages

In a share acquisition, the buyer will not pay VAT.

Disadvantages

The amount paid for the shares acquired is allocated to the shares, and not to the underlying assets. As a result, the tax basis of the shares reflects the purchase price paid for them, and the buyer cannot amortise the underlying assets according to the price paid for the shares (meaning that the tax basis for the underlying assets for the purpose of amortisation remains the same). Also, as a consequence of not modifying the tax basis, a future sale of the assets would derive a gain considering the difference between the price obtained and the original basis.

 

Tax advantages/disadvantages for the seller

12. Please set out the tax advantages and disadvantages of a share disposal for the seller.

Advantages

A local company is subject to income tax on the gain derived from the sale of shares, as it would be if the transaction was implemented as a sale of assets. Both advantages and disadvantages can result, depending on the respective tax basis of the shares and the assets.

VAT does not apply to the sale of shares, though it does apply to the sale of movable assets (for example, inventory).

The sale of shares is generally exempt from turnover tax, while the sale of assets (for example, inventory) is subject to this tax.

If the seller is a non-Argentine resident, the sale of shares has the advantage that any gain derived from the sale is exempt from income tax, and would not be subject to VAT or turnover tax.

Disadvantages

Disadvantages can result depending on the tax basis of the shares (see above, Advantages).

 

Transaction structures to minimise the tax burden

13. What transaction structures (if any) are commonly used to minimise the tax burden?

In order to take advantage of the tax exemption for gains obtained by non-Argentine companies from the sale of shares of Argentine companies, it is common to see foreign companies acquiring the shares of local companies (rather than their assets) so that they can enjoy the tax benefits on a later sale.

 

Asset acquisitions and disposals

Taxes potentially payable

14. What taxes are potentially payable on an asset acquisition/asset disposal?

The following taxes can apply in the case of an asset acquisition/asset disposal:

 

Exemptions and reliefs

15. Are any exemptions or reliefs available to the liable party?

There are no exemptions or reliefs available on an asset acquisition/asset disposal, except for those that could exist in the relevant regulations of Argentine provinces and the City of Buenos Aires for turnover tax or stamp tax.

 

Tax advantages/disadvantages for the buyer

16. Please set out the tax advantages and disadvantages of an asset acquisition for the buyer.

Advantages

In an asset acquisition the amount paid for the assets is allocated to those assets. Therefore, their tax basis will be increased to reflect the purchase price, and the buyer is able to amortise them based on that increased new basis. Also, as a consequence of such increase in the tax basis of the assets, a future sale would derive a minor gain.

Disadvantages

An asset acquisition may trigger VAT. If movable assets are located in Argentina, VAT will be payable, and any VAT paid will be a VAT credit for the buyer that they can use to offset their future VAT liabilities.

As regards national taxes, the Argentine Procedural Law provides that the buyer of a business is jointly and severally liable with the seller where there are unpaid taxes and the tax authority has made a request for payment of these taxes. However, the buyer's liability for any non-assessed tax (contingencies) ceases either:

  • Three months after the transfer, if the AFIP was notified of the transfer at least 15 working days prior to its effective date and provided the tax authorities do not determine the tax debt within that three-month period.

  • Where the AFIP confirms the seller's solvency, or considers that the security offered by the seller is sufficient.

The tax authorities are therefore able to collect unpaid past taxes relating to the seller's going concern from the buyer, but are not with respect to non-assessed taxes to the extent the above procedure applies. Similar rules apply at local provincial level concerning the payment of turnover tax.

 

Tax advantages/disadvantages for the seller

17. Please set out the tax advantages and disadvantages of an asset disposal for the seller.

Advantages

See Question 12, Advantages.

Disadvantages

In an asset disposal, in addition to income tax, the seller must pay VAT (collected from the buyer) and turnover tax (except for fixed assets).

 

Transaction structures to minimise the tax burden

18. What transaction structures (if any) are commonly used to minimise the tax burden?
 

Legal mergers

Taxes potentially payable

19. What taxes are potentially payable on a legal merger?

Mergers are governed by the Companies Law (CL). The CL governs both:

  • Consolidations. Where two or more companies transfer their assets and liabilities to a new company which, as consideration, issues shares to the shareholders of the merged companies, which are then dissolved.

  • Mergers. Where one or more companies transfer their assets and liabilities to an existing company that, as consideration, issues shares to the shareholders of the absorbed company/companies, which are then dissolved.

Under Argentine law, any transfer of assets taking place as a consequence of a merger (that is, the transfer of assets from an absorbed company) triggers all taxes usually applicable in a sale transaction. However, Argentine tax laws provide that, to the extent certain conditions are satisfied, certain exemptions or reliefs can be applied to eliminate or reduce the tax liability (see Question 20).

 

Exemptions and reliefs

20. Are any exemptions or reliefs available to the liable party?

The Income Tax Law establishes a tax-free reorganisation regime under which any gain resulting from mergers, spin-offs, and transfer of assets between entities belonging to the same economic group is not subject to income tax provided certain requirements are met. The following requirements apply (among others):

  • A continuity of interest requirement that prohibits sales of substantial participations in the surviving entities for two years.

  • The activity in the surviving entities must be carried out for two years.

  • Certain publication and registration conditions must be met.

  • The reorganisation must be reported to the tax authorities within 180 days of the reorganisation.

The tax-free regime also allows the transfer of certain tax attributes (for example, tax losses) from pre-existing entities to the surviving entities provided certain conditions are met. Further, transfers made as a result of tax-free reorganisations are not subject to VAT, and provinces and the City of Buenos Aires may provide exemptions from turnover tax and stamp tax.

 

Transaction structures to minimise the tax burden

21. What transaction structures (if any) are commonly used to minimise the tax burden?
 

Joint ventures

Taxes potentially payable

22. What taxes are potentially payable on establishing a joint venture company (JVC)?

The joint venture vehicle most commonly used in Argentina is the joint venture (Unión Transitoria de Empresas) (UTE). UTEs themselves are not liable to pay income tax. Instead, their profits must be attributed to each partner according to their ownership interest in the UTE.

The UTE is a specific type of joint venture governed by the CL. A non-resident corporation can be a member of an Argentine UTE provided it complies with the same kind of registration proceedings with the Public Registry of Commerce that apply to a branch of a foreign company.

They are best adapted for temporary associations, for example, the development of specific works or services (oil and gas exploration and drilling operations, and public works). Decisions in UTEs are only made by the unanimous vote of their members, unless the UTE agreement provides otherwise. UTEs are not generally treated as independent legal entities (although they are treated as such for certain purposes including labour law, social security contributions and for VAT and turnover tax).

 

Exemptions and reliefs

23. Are any exemptions or reliefs available to the liable party?
 

Transaction structures to minimise the tax burden

24. What transaction structures (if any) are commonly used to minimise the tax burden?
 

Company reorganisations

Taxes potentially payable

25. What taxes are potentially payable on a company reorganisation?
 

Exemptions and reliefs

26. Are any exemptions or reliefs available to the liable party?
 

Transaction structures to minimise the tax burden

27. What transaction structures (if any) are commonly used to minimise the tax burden?
 

Restructuring and insolvency

28. What are the key tax implications of the business insolvency and restructuring procedures in your jurisdiction?

Tax implications for the business

Except for certain specific provisions, there are no special rules governing these procedures and the general provisions included in the tax laws and regulations apply.

Tax implications for the owners

See above, Tax implications for the business.

Tax implications for the creditors

See above, Tax implications for the business.

 

Share buybacks

Taxes potentially payable

29. What taxes are potentially payable on a share buyback? (List them and cross-refer to Questions 3 to 6 as appropriate.)

Not applicable.

 

Exemptions and reliefs

30. Are any exemptions or reliefs available to the liable party?

Not applicable.

 

Transaction structures to minimise the tax burden

31. What transaction structures (if any) are commonly used to minimise the tax burden?

Not applicable.

 

Private equity financed transactions: MBOs

Taxes potentially payable

32. What taxes are potentially payable on a management buyout (MBO)?

Not applicable.

 

Exemptions and reliefs

33. Are any exemptions or reliefs available to the liable party?

Not applicable.

 

Transaction structures to minimise the tax burden

34. What transaction structures (if any) are commonly used to minimise the tax burden?

Not applicable.

 

Reform

35. Please summarise any proposals for reform that will impact on the taxation of corporate transactions.

Currently the Congress is analysing a Bill which, among other things, would amend the Income Tax Law to tax gains derived from the sale of shares of Argentine companies obtained by foreign beneficiaries.

 
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