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Nicolás Procopio
Allende & Brea, Buenos Aires
nprocopio@allende.com

 

Extraordinary contribution on great fortunes (the wealth tax)

In order to tackle the situation created by the Covid-19 crisis, the Argentinian government established a new tax applicable to high net worth individuals. As it is drafted, the law states that the wealth tax created is a ‘one-time emergency’ mandatory contribution. This new tax is applicable to individuals and undivided inheritances who were tax residents as of 31 December 2019, for all their assets in the country and abroad, provided that the overall value of their assets exceeds the amount of ARS 200m (approx US$2.5m) at the date of entry into force of the wealth tax law.

Argentinian nationals living in non-cooperating, low or zero-tax jurisdictions will be considered as resident subjects for the purposes of the wealth tax. The newly created wealth tax is also applicable to foreign residents holding assets in the country, provided that the overall value of their assets exceeds the amount of ARS 200m (approx US$2.5m) at the date of entry into force of the wealth tax law. It is important to highlight that the wealth tax also includes in its taxable basis contributions to trusts (either revocable or irrevocable) or foundations of private interest and other similar structures, participation in companies or other entities of any kind without tax personality, as well as direct or indirect participation in Argentinian or foreign companies – whether listed or not in exchange markets – or any other entities of any kind (which existed at the date of entry into force of the law).

The applicable tax rates vary depending on where the assets are located. For assets situated in Argentina, the wealth tax provides with a fix payment varying between ARS 6m and ARS 88.5m, and a variable rate ranging from 2 per cent to 3.5 per cent depending on the value of the assets. For assets located abroad, the applicable tax rates are 3 per cent, 3.375 per cent, 3.75 per cent, 4.125 per cent, 4.50 per cent, 4.875 per cent and 5.25 per cent, depending on the value of the assets located in Argentina and abroad. In the event that foreign financial assets are repatriated – representing 30 per cent of the total value of financial assets located outside Argentina – the rates and scales to be used in the case of assets in Argentina will be applied to all assets located abroad.

The wealth tax law states that, for any transfer that occurred during the 180 days before the day the tax entered into force, the Argentinian Tax Authority may presume that such transfer has been made to avoid this new tax and disregarded for the assessment of the wealth tax, unless proven otherwise by the taxpayer.

In addition, it is expected that the Argentinian Tax Authority will issue a General Resolution in the coming weeks, which would include certain practical aspects complementary to the wealth tax law, such as how to report the value of the assets and the timing for making the payment of the tax.

Nevertheless, it is expected that a significant number of taxpayers will challenge the constitutionality of the wealth tax law in order to avoid paying the wealth tax.

The mandatory tax planning disclosure regime

By way of General Resolution 4838/2020, the Argentinian Tax Authority established a new reporting regime covering both national and international tax planning structures, transactions and operations (the 'Regime'). As a result of the creation of the Regime, obliged subjects must report before the Argentinian Tax Authority when entering into any of the structures, transactions and operations deemed as national or international tax planning, in accordance with the definitions provided by the Regime and described below.

As defined in General Resolution 4838/2020, tax planning structures and transactions that are included in the Regime are the following:

• National tax planning includes any agreement, scheme, plan, and any other action that results in a tax advantage or any other type of benefit in favour of the taxpayer that is carried out in Argentina in relation to any national tax and/or information regime. Specific types of national tax planning for this purpose will be provided in the 'IPF' section on the tax authority website (www.afip.gob.ar);

• International tax planning includes any agreement, scheme, plan and any other action that results in a tax advantage or any other type of benefit in favour of the taxpayer that involves Argentina and one or more foreign jurisdictions. In particular, this includes the following situations:

• the use of companies to obtain the benefits of a double taxation agreement, the implementation of structures to avoid having a permanent establishment, obtaining international double non-taxation, the allocation of one or more tax bases in foreign countries, and the avoidance of any information regime;

• the involvement of non-cooperative, low or no-taxation jurisdictions;

• taking advantage of the existing asymmetries in the tax laws of two or more jurisdictions with regard to the treatment and characterisation of an entity or contract or financial structure;

• an individual, undivided estate, partnerships, trusts, foundations, or any other foreign entity or legal instrument that has dual tax residence;

• any subject that has rights inherent to the nature of a beneficiary, settlor, trustee (or similar) of a trust (or similar) of any type constituted abroad, or in foundations of private interest, or in any other type of estate of similar affectation located, settled, domiciled and/or constituted abroad; and

• any planning which is specifically referenced on the IPF website.

The obligation to report set forth by the Regime must be fulfilled by (1) taxpayers when they participate in any national or international tax planning strategy as defined above; and (2) local tax advisers, being defined as individuals and legal persons and other entities, that, in the ordinary course of their activity, help, assist, advise, give opinions or carry out any activity related to the implementation of a tax planning, provided that they participate in such implementation directly or through third parties.

The obligation established constitutes an autonomous obligation on each of the obligated parties. Compliance with the information regime by one of the reporting parties does not release the rest of the reporting obligation. If the tax adviser is protected by professional secrecy, they shall notify the taxpayer of such circumstances.

Deadlines for complying with the regime depend on the nature of the tax planning structure. National structures must be reported by the last day of the month following the end of the fiscal period in which the tax planning was implemented, while international tax planning must be reported within ten days of implementation. For this purpose, it is considered that the implementation of tax planning begins from the moment the first step is taken to implement the applicable tax planning structure.

Prior tax planning must also be reported, including tax planning that has been implemented between 1 January 2019 and the date the General Resolution was published (20 October 2020), and even tax planning implemented before 1 January 2019 provided that such structures are still in force. Information on such tax planning must be reported by 29 January 2021.

Tax treaties

On 15 January 2021, the Legislative Branch passed Law No 27,608, ratifying the pending double taxation treaty signed between Argentina and Qatar, which had been signed on April 2018.

The double taxation treaty provides for dispositions in order to eliminate double taxation with respect of taxes on income, as well as exchange of information provisions (upon request by any of the countries), evidencing Argentina’s efforts to combat tax avoidance.

 

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