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 global guide to tax on transactions. For a full list of jurisdictional Q&As visit www.practicallaw.com/taxontransactions-guide.

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 will 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.

 

Disclosure of corporate transactions

3. Is it necessary to disclose the existence of any corporate transactions to the tax authorities?

In principle, there are no disclosure requirements before the Argentine tax authorities regarding corporate transactions performed. However, some reporting obligations apply in connection with certain transactions:

  • Tax-free reorganisations. Among other requirements, taxpayers are obliged to report the existence of a tax-free reorganisation within 180 consecutive days as from the date of reorganisation, and to submit certain documents in a period that cannot be extended beyond two years from that date, except in the case of pending approvals by regulatory entities.

  • Transfer and/or assignment of securities, shares, participations. AFIP's General Resolution No 3293/2012 sets out the obligation to report within ten business days after the date of the transaction, the total or partial (gratuitous or onerous) transfer and/or assignment of securities, shares, participations, and so on, in the capital or equity of certain entities. This obligation applies to the seller, the buyer and the company whose shares or securities are being transferred. Also, the obligation applies to the notary public involved in the transaction, if any.

  • Transactions executed in the domestic market between related parties. Under AFIP's General Resolution No 3572/2013, the Argentine Federal Tax Authority created an information regime concerning transactions executed in the domestic market between related parties located in Argentina. The scope of the terms "related parties" is very broad.

  • Transfer pricing provisions. Cross-border transactions executed between related parties (an Argentine resident with a non-resident party) are subject to reporting/disclosure through transfer pricing reports. The taxpayer must submit documentation to demonstrate the terms of the relevant transactions have been agreed on an "arm's length" basis.

 

Main taxes on corporate transactions

Transfer taxes and notaries' fees

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

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.

 

Corporate and capital gains taxes

5. What are the main corporate and/or capital gains taxes 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 price obtained and the tax basis (that is, the cost of the shares or equity participations).

Capital gains arising from the sale of shares, quotas, or other equity participations in Argentine entities, bonds or other securities traded through exchange markets duly authorised by the Argentine Securities and Exchange Commission obtained by Argentine-resident individuals are exempt from Argentine income tax, and are subject to a reduced 15% rate if such conditions are not met.

As to non-Argentine residents, gains derived from the sale of shares, quotas, or other equity participations in Argentine entities, bonds or other securities are also subject to tax. The seller is able to choose between paying a 13.5% rate of the gross amount paid, or 15% of the "real net income" derived from the transaction (that is, the difference between the gross amount obtained and the expenses incurred in the country necessary for obtaining, maintaining and conserving the gain, as well as other deductions provided by the law and duly recognised by the AFIP). Where both the seller and the buyer are non-Argentine residents, the law appoints the buyer as liable for the payment of the tax.

Moreover, capital gains arising from the sale of certain securities (that is, negotiable obligations issued by Argentine corporations placed through a public offering, trust securities issued by Argentine financial trusts placed through a public offering and Argentine government bonds) are exempt from income tax for Argentine-resident individuals and non-Argentine residents.

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 the amount of the capital of the surviving entities for at least two years (that is, continuity of interest requirement).

  • 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.

 

Value added and sales taxes

6. 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/her. 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 "tax 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

7. 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 Argentine 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% applicable to each credit and debit taking place in a bank account. 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

8. In what circumstances will the taxes identified in Questions 4 to 7 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. Gains obtained by foreign companies which are derived from the sale of shares, quotas, or other equity participations in Argentine entities are subject to income tax at a 13.5% rate of the gross amount obtained, or at a 15% rate applicable to the "real net income", as explained in Question 5.

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

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

The distribution of dividends to Argentine-resident individuals and non-Argentine residents is subject to a 10% withholding tax that must be applied by the entity making the distribution. In addition, dividends are taxed at a 35% rate if they are being distributed out of profits that were not taxed at the corporate level. This taxation, usually known as "equalisation tax", is in addition to the 10% withholding.

The above-mentioned tax rate of 10% may be reduced if a treaty to avoid double taxation applies, provided certain requirements are met. Generally, these treaties provide for a ceiling in the applicable withholding rate of 10% or 15% of the gross amount paid, depending on certain circumstances. 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.

 

Share acquisitions and disposals

Taxes potentially payable

10. 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 Questions 4 and 5), and turnover tax and tax on debits and credits in bank accounts (see Question 7).

 

Exemptions and reliefs

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

As explained in Question 5, gains obtained by Argentine-resident individuals arising from the sale of shares, quotas, or other equity participations in Argentine entities, bonds or other securities traded through exchange markets duly authorised by the Argentine Securities and Exchange Commission are exempt from Argentine income tax.

 

Tax advantages/disadvantages for the buyer

12. 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 will derive a gain considering the difference between the price obtained and the original basis.

Tax advantages/disadvantages for the seller

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

Advantages

A local company is subject to income tax at a 35% tax rate on the gain derived from the sale of shares, as it would be if the transaction was implemented as a sale of assets. If the seller of shares is an Argentine-resident individual, the gain subject to income tax is exempt or reduced to a 15% rate, whereas the income from other sources (for example, gains derived from the sale of assets) is subject to tax at a sliding scale that ranges from 9% to 35%. If the seller of the shares is a non-Argentine resident, the gain is subject to income tax at a 13.5% rate of the gross amount paid, or at a 15% rate of the "real net income", as explained in Question 5. By contrast, gains derived from the sale of assets located in Argentina obtained by non-Argentine residents are subject to a 17.5% rate of the gross amount paid, or at a 15% rate of the "real net income". Thus, 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.

Disadvantages

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

Transaction structures to minimise the tax burden

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

Some transactions are structured as local mergers, spin-offs and transfers within the same economic group in order to be considered as "tax-free reorganisations", as long as they comply with certain requirements (see Question 21).

 

Asset acquisitions and disposals

Taxes potentially payable

15. 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

16. 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

17. 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 can be used to offset 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

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

Advantages

See Question 13, 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

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

Legal mergers

Taxes potentially payable

20. 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 21).

 

Exemptions and reliefs

21. 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 and comply with the final registration before the Public Register within two years.

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 Argentine provinces and the City of Buenos Aires may provide exemptions from turnover tax and stamp tax.

 

Transaction structures to minimise the tax burden

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

Joint ventures

Taxes potentially payable

23. 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 that was governed by the CL. As from 1 August 2015, provisions concerning UTEs were abrogated from the CL and similar provisions for temporary unions (uniones transitorias) (UT) were included in the new Civil and Commercial Code, although certain differences exist.

UTs 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). UTs 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

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

Transaction structures to minimise the tax burden

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

Company reorganisations

Taxes potentially payable

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

Exemptions and reliefs

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

Transaction structures to minimise the tax burden

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

Restructuring and insolvency

29. 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

30. What taxes are potentially payable on a share buyback? (List them and cross-refer to Questions 4 to 7 as appropriate.)

Not applicable.

 

Exemptions and reliefs

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

Not applicable.

 

Transaction structures to minimise the tax burden

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

Not applicable.

 

Private equity financed transactions: MBOs

Taxes potentially payable

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

Not applicable.

 

Exemptions and reliefs

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

Not applicable.

 

Transaction structures to minimise the tax burden

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

Not applicable.

 

Reform

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

A new President and new legislators are in charge since 10 December 2015, and certain amendments to the tax laws have been announced. Although the specific proposals are still unknown, such amendments might have an impact on corporate transactions.

 

Contributor profiles

Gabriel Gotlib

Marval, O'Farrell & Mairal

T +54 11 4310 0100
F +54 11 4310 0200
E gg@marval.com
W www.marval.com

Qualified. Argentina (Buenos Aires), 1990

Areas of practice. Tax.

Recent transactions

  • Tax advice regarding tax-free reorganisation of an important multi-national textile and athletic footwear company (Alpargatas), with a presence in Argentina and Brazil.
  • Tax advice to awarded group on the work called "Repowering Central Governor Arturo Zanichelle – Pilar – Córdoba – Construction Lines and Substations". Works included the Combined Cycle Power Station, Transformer Station, and High Voltage Lines that will link the Central Power Station to the substations of the City of Córdoba for distribution.

Walter Keiniger

Marval, O'Farrell & Mairal

T +54 11 4310 0100
F +54 11 4310 0200
E wk@marval.com
W www.marval.com

Qualified. Argentina (Buenos Aires), 1994

Areas of practice. Tax.

Recent transactions

  • Advised Repsol in relation to structuring the tax aspects of the Repsol/Republic of Argentina deal (structuring the different sets of bonds (four different issuances), covenants, pricing mechanics, delivery, clearing and listing) in order to avoid hold-out risk and permit the immediate monetisation of the bonds by Repsol.
  • Advised and represented AMX S.A. (Claro) in different high-profile disputes before the tax authorities, obtaining several preliminary injunctions by which the tax authorities cannot initiate claims until a decision in the appeals of its resolutions are made.

María Ines Brandt

Marval, O'Farrell & Mairal

T +54 11 4310 0100
F +54 11 4310 0200
E mibr@marval.com
W www.marval.com

Qualified. Argentina (Buenos Aires), 1993

Areas of practice. Tax.

Recent transactions

  • Advised one of the leading telecommunications operator for the implementation of a new business model.
  • Advised and represented one of the world's leading chemical company to revoke a ruling of the Federal Argentine Tax Authority which considered the requirements to qualify the merger as a tax-free reorganisation were not fulfilled.
  • Advised one of the world's largest company dedicated to energy, in particular trading hydrocarbons, to open a new company and business division related to grains in Argentina.

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