Tax Regulation

SYNOPSIS

A. INTRODUCTION 13.101

B. INCOME TAX

1. Tax matters. Taxpayers 13.110
2. Company dividends or profit distributions 13.117
3. Imports and Exports 13.120


C. VALUE ADDED TAX (VAT) 13.121

D. OTHER FEDERAL TAXES

1. Internal Revenues 13.123
2. Tax on liquid fuel and compressed natural gas (CNG) 13.124
3. Tax on personal assets 13.125

E. COMPANY SHARES AND NOTES 13.126

F. SOCIAL SECURITY REVENUES 13.128

G. TURNOVER TAX 13.132

H. STAMP TAX 13.133

I. OTHER LOCAL TAXING 13.134



A. INTRODUCTION

13.101 Given the federal system of government adopted by the Constitution, taxation by the central government does not exclude the provinces from applying both direct and indirect taxes and municipalities (counties) locally also levying taxes.

13.102 The central government and the provinces have entered into agreements, later enacted by statutory laws of Congress and admitted by the 1994 amendment to the Constitution, whereby the former is in charge of collecting the principal taxes and of distributing the proceeds among the provinces. This arrangement is therefore known by the name of "Régimen de Coparticipación Federal" (federal tax sharing regime).

13.103 In order to insure tax payers’ constitutional rights, taxes can only be enforced by statutory laws, either enacted by Congress or by the provincial legislatures, as the case may be. Tax raising must not be unduly discriminatory and taxes must be levied in accordance to tax paying capacity and not be confiscatory.

13.104 Tax collection and follow up of federal tax compliance is in charge of the "Administración Federal de Ingresos Publicos" (A.F.I.P., Federal Public Revenue Office), that includes the "Dirección General Impositiva" (D.G.I, Internal Tax Revenue Office) and the "Dirección General de Aduanas" (D.G.A., Customs Office).

13.105 The normal limitation time period for payment or reimbursement of federal taxes is five years as from the first day of the year following that in which payment has become due. Provincial tax regulation normally applies a ten year limitation period.

13.106 Interest applied to tax default is actually charged at a two percent monthly rate and penalty interest is set at a monthly three percent that accrues as a result of court enforcement proceedings.

13.107 Tax payment default, failure to withhold taxes and failure to render withheld amounts are reasons for fines being applied by the tax office, whereas fines and three to ten day close down of shops and other establishments are applied in cases of the pertinent invoice not having been issued, of undue bookkeeping and of other illegal commercial proceedings having been discovered.

13.108 In 1990 tax and social security payment evasion and other similar cases of tax fraud by taxpayers were made criminal offenses that are punishable with the offenders’ imprisonment pursuant to laws Nº 23.771 and 24.769.

13.109 Particularly since 1989 different withholding procedures and advance collection and payment of taxes, both on a federal and provincial level, have come been put into effect.

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B. INCOME TAX

1. Tax matter. Taxpayers.

13.110 Income tax, income always meaning profit, rent or earnings, is raised:

1. In the case of individual persons and undivided estates, on the basis of an increasing rate applied to their income.

2. In the case of limited and similar joint stock companies, proportionately to their income.

3. In the case of foreigners, on the basis of a presumptive withholding tax applied on their local source of income.

13.111 In the case of physical persons and undivided estates, income is considered taxable depending on its coming form a normally or potentially recurrent source of income and also from such a source being a usual undertaking or activity of the taxpayer’s. In the case of companies, any income shown on their financial statements is taxable, including capital earnings and extraordinary profits.

13.112 Pursuant to law Nº 24.073, as from 1992 Argentina has adopted a worldwide income taxing system, whereby resident taxpayers are taxed on their local and foreign income but can deduct as tax credits any income tax amounts paid abroad to the extent of the local tax increase due to such foreign income. Non residents are taxed only on their Argentine income, which is considered to have been of a local source when coming from property located, invested or otherwise used toward a profit in the country, or from activities of any sort performed to such an effect in Argentina, or from circumstances happening within the country, whatever be the nationality or place of residence of the parties’ to any such transactions and whichever the place of execution of the relevant agreements.

13.113 For the sole purpose of tax revenue reckoning, the law distinguishes several income tax categories according to the source of income, as follows:

• First category income: soil and real estate income.
• Second category income: capital earnings and income from movables.
• Third category income: company profits and certain trade auxiliaries’ income.
• Fourth category income: personal work wages (including, among others, salaries, bonuses, payments for holidays not enjoyed, insurance premiums paid by employers and travel expenses, rent, schooling or credit card payments also by employers and car use and other expenses included as labor benefits), retirement payments and pensions and professional fees.

13.114 Limited and other similar companies and all kinds of likewise organized establishments or enterprises belonging to foreign limited or similar companies are considered third category income tax payers and are taxed at a thirty three percent rate on taxable income, which is essentially gross profit minus the expenses incurred to attain such income or to maintain the source of income, and other deductions allowed by law.

13.115 Individual persons and undivided estates must calculate their income tax by adding their earnings, and also deducting their losses, in all the different income tax categories as may be the case. The outcome is then taxed at an increasing rate of between six and thirty three percent that is applied to a predetermined also growing scale of earnings and added to a varying fixed amount as shown below:

13.116 Losses attributable to foreign income sources can only be deducted from earnings of such same sources.

2. Company dividends or profit distributions.

13.117 Whereas limited companies and those in similar circumstances for tax purposes are subject to income tax, dividend or profit distribution, whether to local or profit distribution whether to local or foreign shareholders or partners, is tax exempt.

13.118 Likewise, Argentine incorporated branches of foreign companies are subject to a thirty three percent (33%) income tax. After tax profits are then tax exempt when transferred abroad.

13.119 Foreign beneficiaries of income of any category from an Argentine source are subject to a nominal thirty three percent withholding tax, which however (and even in the absence of more favorable conditions resulting from applicable international agreements entered into by the Argentine government to exclude double taxation) in practice amounts to an effective lesser rate due to the referred nominal rate being applied only to legally presumed income and not to the total income transferred abroad, as shown in the following table:

3. Imports and Exports

13.120 Profits on exports are taxable after specific expense deduction, whereas foreign exporters’ profits on their imports into Argentina are tax free.

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C. VALUE ADDED TAX (VAT)

13.121 Sales of movables located in the country, work and service hiring not for wages to be performed in the country and importation of movables are subject to VAT at a twenty one percent rate. Service by public utilities is taxed at a twenty seven percent rate, save for services rendered to other than commercial or industrial establishments. Home building and importation of works of art are taxed at a ten point five percent rate. On the other hand, exports are exempt and accordingly VAT payments on transactions leading to exportation of wares are reimbursable.

13.122 The balance between VAT billed to customers (tax debit) and VAT invoiced by suppliers (tax credit) must be paid monthly, with balance amounts in favor of the taxpayer only able to be set-off against future tax debits. VAT withholding surpluses not set-off against the taxpayer’s tax debits may be asked to be reimbursed or, under certain conditions precedent, applied to payment of other taxes.

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D. OTHER FEDERAL TAXES

1. Internal Revenues

13.123 Internal revenue taxes (Law Nº 24.674) are applied to the sale of consumer goods such as tobacco, alcoholic and soft drinks, beer, syrup, extracts and concentrates, as well as to the sale of automobiles and diesel engines, of certain electronic devices and electrical home machines and to insurance premiums.

2. Tax on liquid fuels and compressed natural gas (CNG)

13.124 Laws Nº 23.966 and Nº 24.698 tax the sale of liquid fuels and compressed natural gas for use as automobile fuel.

13.125 Personal assets tax is established by Law Nº 23.966 at a half percent rate and is levied on:

1. Individual and undivided estates domiciled in Argentina for assets such as real estate, vessels, aircrafts, automobiles, movables, money bills and deposits, securities and company shares, whether they be located in the country or abroad, for an aggregate value of over $ 102.300.

2. Individual persons and undivided estates domiciled abroad for their assets located inside Argentina.

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E. COMPANY SHARES AND NOTES

13.126 Resident and non resident individual persons and undivided estates and foreign companies not established permanently in the country are exempt from income tax on earnings on the sale or disposal of shares, debt notes and other securities, whereas income taxpayers who had formally been subject to tax inflation adjustment, i.e. namely locally incorporated companies, local branches of foreign companies, one man firms and certain individual merchants, are subject to the tax.

13.127 Securities Law Nº 23.576 as amended by law Nº 23.962 authorizes public offerings of debt issues by corporations, locally incorporated cooperatives and civil associations and foreign company branches when such offerings have been previously approved by the Comisión Nacional de Valores (CNV, National Securities Commission) and the funds are to be invested in tangible assets or working capital in the country, or applied to debt refinancing or to capital contributions toward controlled or affiliate companies of the issuer also for such ultimate purposes, in which case all such transactions as are involved in the issuing, placement and performance of the notes are VAT exempt and the proceeds of their disposal is free from income tax for individual persons, undivided estates and foreign investors, with any interest payments and issuance expenses being deductible by the issuer for income tax purposes.

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F. SOCIAL SECURITY REVENUES

13.128 Pursuant to Law 24.241 private run pension funds have been added as an option and are to replace the public state run national pension system existing up to 1994. Both the private and public pension systems are funded on the basis of dividing the working population into persons working for wages, such as public or private workers and employees, and independent workers or self employed persons, mainly businessmen and professionals.

13.129 Contributions by workers of the first group under a relationship with an employer are set at eleven percent of the labor wages. The resulting amount is discounted from the beneficiaries wages and added to a sixteen percent which must be contributed by the employer, who also is obligated to pay an additional sixteen percent on all salaries of personnel in his charge, which amount is distributed toward different national social security purposes such as the national employment fund and health and family allowances. Employers also contribute a fourteen percent on food tickets and parcels dealt out to their employees. The Federal Tax Agreement (Pacto Fiscal Federal), which was entered into by the central government and the provinces in 1993, allows for reductions on employers contributions to social welfare, which vary from thirty to eighty percent depending on the distance separating their establishments from the country’s capital city and on the prevailing socio-economic circumstances.

13.130 Independent workers are obligated to make a monthly payment equivalent to thirty two percent of their presumptive earnings (on a yearly adjustable basis reckoned in accordance to the country’s national budget) and are therefore assigned to different contributing categories from "A" through "J" depending on their specific kind of occupation, as shown in the table bellow:

13.131 Contributors of any nature to private pension funds can make voluntary additional contributions to their beneficial accounts in such funds, or arrange for them to be made by third parties.

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G. TURNOVER TAX

13.132 Turnover tax is a locally established tax levied by the provinces and the city of Buenos Aires on any activity of a commercial, industrial, professional or business nature that is habitually undertaken for profits by individual persons or legal entities, at rates varying between one and five percent of the amounts invoiced, with certain minor deductions, depending on the place of taxation and type of activity involved.

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H. STAMP TAX

13.133 Stamp tax is also a locally established tax levied on public or private instruments supporting both parties’ consent to sales, leases, assignments of rights, loans, mortgages and other such contractual documentation of agreements entered into for valuable consideration. Except for the city of Buenos Aires, where stamp tax has virtually been suppressed, the applicable tax rate varies according to the province and is generally set at one percent of the contract’s worth.

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I. OTHER LOCAL TAXING

13.134 Other taxes collected locally mostly fall on real estate or automobile licenses or are due because of public services rendered by local authorities, such as rubbish collection, street cleaning and public lighting.

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