Argentinean Argentinean Tax StructureTax Structure

By Roberto Daniel MURMISBy Roberto Daniel MURMISAbelovich, Polano & Asociados S.R.L.Abelovich, Polano & Asociados S.R.L.

Surface

•Argentina

–Continental sector: 2,791,810 km²

–Argentinean Antartica: 969,464 km²

–Total……………. 3,761,274 km²

•Austria 83,859 km²

Population

•Argentina:

–36,223,947

–Density: 9 inhabitants/km²

•Austria

–8,075,000

Official Name: República Argentina

Location: South America

Boundaries: Bolivia & Paraguay (North); Brazil (NE); Uruguay (E); Atlantic Ocean (E & SE); Chile (W & SW)

Surface: 3,761,274 km²

Coastline: 4,986 km

Population: 36,223,947 inhabitants (2001 Census)

Density: 9,63 inhabitants / km²

Ethnic groups: whites (85%); mestizos (10%); aborigines and others (5%)

Capital City: Buenos Aires (2,776,138 hab)

Language: Spanish

Currency: Argentinean Peso ($)

Government: Presidential republic

Independence Day: July 9

INDEX 1. Tax Legislation and Administration

1.1 Enactment of Tax Legislation

1.2 Tax Administration2. National taxes

2. 1 Type of taxes2.1.1 Income tax2. 1. 2. Personal assets tax2.1. 3. Tax on pres. Minimum income

2. 1. 4. Value added tax = TVA = IVA2. 1. 5. Excise Duties

2. 1. 6. Tax on liquid fuel2. 2. Returns. Assessments and Payment of Tax 2. 3. Judicial Review

3. Taxes Imposed by Local Authorities4. Double taxation agreements

4.1 List: comparison Austria & Argentina4.2 Maximum Arg tax rates (divid, int and royalties)

5. Curiosities5.1 Convention Austria – Argentina5.2 Convention between France & Argentina

• 1.1 Enactment of Tax Legislation

– The National Congress shares its tax legislative powers with the provincial legislatures and with the legislature of the City of Buenos Aires.

– No "revenue code"; separate laws frequently amended and sometimes lead to contradictions.

– Federal Government:

• income tax

• personal assets tax

• VAT

• excise taxes

– and distributes a specific share of each tax to each of the provinces.

– agreement that attempts to protect organisations with activities in more than one jurisdiction, from the multiple taxation that may result from the substantial Gross Receipts Taxes.

– Tax laws are complemented by tax regulations issued by Executive Power.

1. Tax Legislation and Administration

• 1.2 Tax Administration

The Federal Administration of Public Revenue (AFIP DGI =IRS):

-is responsible for the national taxes collection and administration, for this purpose it audits taxpayers.

-has the function of bringing out the meaning of the laws and decrees regarding taxes under its

jurisdiction.

1. Tax Legislation and Administration (cont.)

System based ondirect up-front payments+withholdings+collections

which in many cases exceed the tax liability and lead to late and difficult-to-obtain

reimbursements

1.2 Tax Administration (cont.)

!

i. Residents and Non Residents

Residents: worldwide income.Non residents: income from Argentinean source.

ii. Annual returns & financial statements:

- each return must show the adjustments required to arrive at taxable income or loss and the computation of the tax.- Returns must be submitted to the Federal Administration of Public Revenue within five

months after the end of the fiscal year.

iii. Net taxable income of permanent establishments abroad must be allocated to the Argentinean parent company in the fiscal year in which the business year of the permanent establishment ends.

2. NATIONAL TAXES

2. 1 TYPE OF TAXES

2.1.1 INCOME TAX

iv. Deduction Items

• Expenses

• necessarily incurred for the purpose of obtaining income or ensuring its permanence.

• incurred abroad: are presumed to relate to foreign income and are not deductible … unless the contrary can be proved.

• related to business income that is partially derived from a foreign source or is otherwise tax exempted, must be allocated between taxable and non-taxable income.

• deductible only if they are properly supported by vouchers (it is crucial!). Otherwise, they are subject to withholding tax, often become non deductible and may lead to a criminal lawsuit.

• Salaries, wages, gratuities, bonuses, profit participation, and other compensation to employees.

• Interest: thin capitalization rules apply.

• Charitable contributions limited to 5 per cent of the net taxable profits. The excess cannot be carried forward.

• Depreciation. No definite depreciation rates are set forth, except for the case of immovable property (2% for buildings), but rates generally accepted are: 10% for machinery, equipment and furniture, 20% for cars. Deduction of automobiles’ depreciation is limited to the portion of the acquisition value not exceeding $20.000 but this non deductible depreciation implies a higher tax cost.

2.1.1. INCOME TAX - Cont.

iv. Deduction Items (Continued)

• Expenses incurred in the creation of all enterprises may be amortized by equal annual instalments over not more than 5 years or, at the taxpayer’s option, may be written off entirely in the first year.

• Intangible assets with a definite economic life, such as patents and concessions may be amortised.

• Bad debts: deduction is allowed for business debts that become totally or partially uncollectible during the accounting year. There are several tax requirements.

• Taxes. Income tax and taxes on untilled land are specifically disallowed as deductions. Taxes paid in the ordinary course of business, such as the Gross Receipts Tax, customs duties, and stamp and excise taxes, are deductible against gross income. Any penalties assessed in connection with deductible taxes are also deductible-

• Insurance are deductible if the cover risks on assets that provide taxable income.

• Directors’ fees. limit based on:

• a percentage of accounting income or

• a fixed limit established by law.

2.1.1. INCOME TAX - Cont.

v. Non-TAX deductible expenses

• Directors’ fees and payments for technical assistance remitted abroad which exceeds the limits.

• Depreciation of intangible assets without a definite life, such as a goodwill and trademarks.

• General and Special Reserves.

vii. Capital Gains and Losses

Individuals are not subject to income tax in the case of capital gains.

2.1.1. INCOME TAX - Cont.

vi. Inventories must be valued following some rules.

1. Subdivision of land in plots for urbanization purposes.

2. Sale of depreciable assets used in business or industry (in a merger or reorganization, or if the Federal Administration of Public Revenue holds that an economic unit exists between the seller and the purchaser, the profit of the seller is not taxed and the purchaser takes over the seller's basis).

3. Sale of real property used in a commercial or industrial business other than farming or ranching.

4. Transfer of goodwill, trademarks, and patents.

vii. Capital Gains and Losses (Continued)However, certain profits and losses are not treated as capital gains and losses, but are subjected to income tax or are deductible for income tax purposes.Such profits and losses include those resulting from:

• Ordinary Losses may be offset against income arising in the subsequent years. Carried forward: five years; no carry back.

• Losses that come from transactions in corporate stock may be offset only against income arising from the same source, in the subsequent five years. Same treatment applies to foreign source losses.

2.1.1. INCOME TAX - Cont.

viii. Exempt income

• derived by national, provincial or local Governments;

• of “co-operative companies”;

• Religious institutions;

• derived by foundations, associations or civil entities of social assistance, charity, educational, scientific or artistic purposes,

• derived by sports or physical culture institutions and international non-profit organizations of interest for Argentina;

• Interests from loans granted by foreign entities to national, provincial or local Government or loans granted in preferential terms by those institutions;

• derived from the activity of garbage collection & environment protection.

ix. Rate 35 %

• presumptive net income derived by non residents, withholding according to the type of income.

2.1. 1. INCOME TAX - Cont.

x. Foreign Exchange Differences

Differences in foreign exchange rates must be accounted for. This differences are considered Argentinean source income (this is

the current trend, which may change tomorrow…).

xi Transfer Pricing Rules

• Arm’s length principle applies to transactions between related parties.

• Transactions with persons domiciled in tax havens, will not be considered arm’s length transactions.

2.1.1. INCOME TAX - Cont.

• Dividends:

– distributed both to residents and non resident are only taxable if they • a) exceed the taxable income or• b) are derived from foreign companies.

• Rates for individuals:

i. Residents 9 to 35%

ii. Non-residents: withholding tax rate of 35% on the Argentinean source income, according to the presumptions for net income.

2.1.1. INCOME TAX - Cont.

2. 1. 2. PERSONAL ASSETS TAX

• personal assets at the end of each calendar year

• individuals domiciled in

1. Argentina: are subject to tax on their assets situated

1. within the country &

2. abroad;

2. Abroad: are only subject to tax on their assets situated in Argentina.

2.1. 3. TAX ON PRESUMPTIVE MINIMUM INCOME

• applies on assets:

• Rate: 1% on the taxable base.

• Income tax paid in the same fiscal year, may be credited against this tax.

• Where after the deduction of the income tax credit, the result is an outstanding amount of Presumptive Minimum Income Tax, the taxpayer must pay the tax but will be allowed to deduct the amount paid against Income Tax in the following ten fiscal years.

2. 1. 4. VALUE ADDED TAX = TVA = IVA

• Scope:

i. sales of movable property within Argentina by a taxable person acting as such;

ii. import of movable property;

iii. the independent supply of services within Argentina;

iv. the rendering of services abroad, when the effective use or exploitation of the services takes place in Argentina and the user is a registered VAT taxable person.

• Exports (goods & services) are exempted from VAT.• Services rendered within the country shall be deemed to be export if they are

effectively applied or economically utilised outside the country.

• Rates:

1. standard 21 %2. increased 27 %

• gas, electric current, water, sewerage, telecommunication, other than those supplied for residential use or to immovable property for recreation or vacation and only if the beneficiary is a taxable person (registered or not-registered).

3. Reduced 10.5 %:

• works on immovable property for housing; sales and imports of living bovine animals, meat or eatable spoils from bovine animals, fruits, pulse and vegetables; interest and other costs on personal loans granted to final consumers by financial institutions, interest and other costs on loans to enterprises engaged in the transportation of passengers by land granted by financial institutions.

2. 1. 4. VALUE ADDED TAX = TVA = IVA – (Cont.)

• Deductions:i. VAT incurred in importation or acquisition of goods and services may be recovered,

provided that these supplies are used for his taxable activities or VAT-exempt activities with right to recover input VAT.

ii. Input VAT cannot be reclaimed on: acquisition of automobiles which are not considered merchandise; supplies of certain services such us the supply of food and beverages in restaurants or cafes, services rendered by hotels, inns, camping sites, services supplied by gyms or swimming pools, acquisition of clothes which are not work clothing for employees, etc.

• Special Regime For Exportation:

• Exports are exempted.• In addition, exporters may also compute a tax credit for VAT paid on raw materials

and other purchases related to exports. In case the deduction of the tax credit were not possible, or were only partially deducted, the excess part of the credit not used will be allowed as credit against other national taxes or otherwise reimbursed to the taxpayer.

2. 1. 4. VALUE ADDED TAX = TVA = IVA – (Cont.)

2. 1. 5. EXCISE DUTIES

• On goods: Tobacco, alcohol, champagne, beer, soft drinks, syrup and spirits, automobiles and diesel motors, luxury goods, recreation or sport ships and aircraft, certain electronic appliances.

• Taxable persons: manufacturer or importer of taxable products.

• Taxable amount:

– net sale price, except in the case of cigarettes (the taxable amount is the sale price payable by the final consumer).

– In the case of importation, the taxable base will be 130% of the amount resulting from the addition of the taxable base for custom duties plus any tax applied on the transaction, except VAT. When the imported taxable products are sold, the importer is allowed to credit against the tax charged on the outlay, the tax previously paid on the importation.

iii. Rates:

• Tobaccos• Cigarettes 60%• Others 16% - 20%• Alcoholic drinks 12% - 20%• Champagne 12%• Beer 8%• Soft drinks, syrup and spirits 8%• Other goods and services 6.55%• Automobiles & diesel motors 10%• Luxury goods 20%• Ships and aircraft 4% or 8% (according to its value)• Tax credit: In order to keep the tax burden in one stage of the production chain, the tax paid on the inputs,

which are part of the production process of a manufacturer, may be computed as a credit against the final tax payable by the manufacturer.

• Treatment of exports: exempt from excise duties. In the case of exported goods containing national inputs which have been subjected to tax, the exporter can claim for a credit of the tax paid. The same credit is allowed to exporters who have previously paid the tax on the acquisition of exported goods.

• On services

i. Insurance activity

ii. Cellular and satellite telephone services.

2. 1. 5. EXCISE DUTIES – (Cont)

2. 1. 6. TAX ON LIQUID FUEL

• applied in one stage of the production chain, on gasoline with or without lead, natural and virgin gasoline, solvent and oil of turpentine, gas-oil, diesel oil, kerosene and natural gas for use in automobiles.

2. 2. RETURNS. ASSESMENTS AND PAYMENT OF TAX

• The taxpayers determine their taxable income and the tax due or they are subject to a fine, plus interest.

• The registered taxpayers subject to VAT must file accordingly the monthly returns.

• Assessments when:• the taxpayer refuses to submit a return• an increase in assets has not been satisfactorily explained, or• a return is otherwise challenged by the Federal Administration of Public Revenue• the tax is estimated, but if the taxpayer does not agree with the estimation, he may

appeal to the National Tax Court and then to the civil courts.

• The late filing of a return, failure to give required details, failure to respond to a summons, and obstruction of any examination, are punishable by fines.

• The statute of limitations to bar both tax assessments and refunds runs for five years; for unregistered taxpayers, the statutory period for assessments is ten years.

2. 3. JUDICIAL REVIEW

• The taxpayer can appeal the adjustments or penalties in an Administrative Tribunal with judicial functions or before a Judicial Court.

• Up to this instance the taxpayer can argue his case without paying.

• A taxpayer who loses in an administrative proceeding before the National Tax Court and decides to appeal to the Civil Courts must make prior payment.

3. TAXES IMPOSED BY LOCAL AUTHORITIES

• Each of the 23 provinces + the Gov of Buenos Aires City have the right to promulgate their own tax laws (real property, local consumption, internal commerce and production, Gross Receipts and Stamp taxes.

• The provincial governments impose and collect these taxes through their own provincial tax office.

• Municipalities. The municipalities are empowered under the provincial constitutions to develop their own affairs and are authorized to impose a wide variety of taxes by statutes enacted by the municipal councils.

1 Albania  

2 Algeria  

3 Argentina 1 Austria

4 Armênia  

5 Austrália 2 Australia 

6 Azerbaijan  

7 Barbados  

8 Belarus  

9 Belgium 3 Belgium

10 Belize

4 Bolivia 

4. Double taxation agreements4.1 List: comparison Austria & Argentina

Austrian Argentinean

11 Brazil 5 Brazil

12 Bulgaria  13 Canada 6 Canada     7 Chile

14 Croatia  

15 Cuba  

16 Cyprus  

17 Czech Republic  18 Denmark 8 Denmark

19 Egypt  

20 Estonia  21 Finland 9 Finland 22 France 10 France

23 Georgia  24 Germany 11 Germany

•4.1 Double taxation agreements (Cont.)Austrian Argentinean

25 Greece    

26 Hungary    

27 India    

28 Indonesia    

29 Iran    

30 Ireland    

31 Israel    

32 Italy 12 Italy

33 Japan    

34 Kazakhstan    

35 Kirgizstan    

36 Kuwait    

•4.1 Double taxation agreements (Cont.) Austrian Argentinean

37 Liechtenstein    38 Lithuania    39 Luxemburg    40 Macedonia    41 Malaysia    42 Malta    43 México    44 Moldavia    45 Mongolia    46 Morocco    47 Nepal    48 Netherlands 13 Netherlands 49 New Zealand    50 Norway 14 Norway

•4.1 Double taxation agreements (Cont.) Austrian Argentinean

•4.1 Double taxation agreements (Cont.) Austrian Argentinean

 South Korea64

  South Africa63

  Slovenia62

  Slovakia61

  Singapore60

  Saudi Arábia59

  San Marino58

Russia 15Russian Federation 57

  Romania56

  Portugal55

  Poland54

  Philippines53

  People’s Republic of China 52

  Pakistan51

65 Spain 16 Spain

66 Sweden 17 Sweden

67 Switzerland 18 Switzerland

68 Tadzhikistan    

69 Thailand    

70 Tunisia    

71 Turkey    

72 Turkmenistan    

73 UK -United Kingdom 19 UK -United Kingdom

74 Ukraine    

75 United Arab Emirates    

76 USA 20 USA?

77 Uzbekistan    

•4.1 Double taxation agreements (Cont.) Austrian Argentinean

4.2 Maximum Argentinean tax rates (dividends, interests and royalties) COUNTRIES DIVIDENDS INTERESTS ROYALTIES

Germany 15 10 or 15 15

Australia 10 or 15 12 10 or 15

Austria 15 12,5 15

Belgium 10 or 15 12 3, 5, 10 or 15

Bolivia Without limit Without limit Without limit

Brazil Without limit Without limit Without limit

Canada 10 or 15 12,5 3, 5, 10 or 15

Chile Without limit Without limit Without limit

Denmark 10 or 15 12 3, 5, 10 or 15

Spain 10 12,5 3, 5, 10 or 15

Finland 10 or 15 15 3, 5, 10 or 15

France 15 20 18

Italy 15 20 10 or 18

Norway 10 or 15 12,5 3, 5, 10 or 15

The Netherlands 10 or 15 12 3, 5, 10 or 15

The United Kingdom 10 or 15 12 3, 5, 10 or 15

Sweden 10 or 15 12,5 3, 5, 10 or 15

Switzerland 10 or 15 12 3, 5, 10 or 15

5.1 Convention Austria – Argentina:

• Income Tax on Austrian bonds held by an Argentinean taxpayer:• The Argentinean authorities have construed that there are three types of income derived

from bond holdings and sales:1. Interests,

• under the Convention2. Gains on bond sales,

• under the Convention3. Exchange differences between capital invested and sale:

• Considered Argentinean Source and taxable; the Convention only governs capital gains derived from sales.

• Personal Assets Tax:• Taxable equity in issuer’s state,• Taxable bonds in issuer’s state.

5. CURIOSITIES

5. 1 AUSTRIAN COMPANY FOR ARGENTINEAN INVESTORS ABROAD

• Argentinean residents:

1. incorporate an Austrian comp. (& trust?...or both…)2. underwrite bonds issued by the GmbH.3. GmbH incorporates foreign subsidiaries.

• => Income tax:

• Austrian company where dividends are subject to taxes in Austria up to 15%, but not in Argentina (35%!).

• Interest paid by GmbH are not subject to tax in Argentina.

• => No personal assets tax in Argentina (under the Convention) for

• Equity issued in Austria nor• Bonds

5.2 CONVENTION BETWEEN FRANCE & ARGENTINA

•Technical Assistance 18 %.

•Differences between services and Technical Assistance

•Register the contract: otherwise => Argentinean Source

•Differences between estimated amount and real amount could be debatable

•Methods to avoid double-taxation:

•Argentina: French source =>•exemption...and perhaps France exempts from taxable base!

•France: Argentinean source => exemption or credit

•France is one of the three leading countries committed to tax reductions:

•Combined amount of income tax, wealth tax and certain property taxes cannot exceed 60 % of a taxpayer´ s income. Planning to reduce ceiling to 50%

The end