Argentina: tax authorities’ spotlight turns on irrevocable trusts
Marval, O´Farrell & Mairal, Buenos Aires
On 27 December 2017, under Law No 27,430, the Argentine Congress passed a substantive tax reform that, among other changes, introduced a broad amnesty for previously undeclared wealth. In essence, the Argentine government waived civil and criminal prosecution for tax and customs-related violations, against all taxpayers disclosing both local and foreign assets within an established timeframe.
Although law No 27,430 guaranteed confidentiality to all amnesty beneficiaries, private estimates placed newly reported foreign assets somewhere in the region of US$93.3bn.
Two years later, following a change in governing political party, the Argentine Congress introduced further modifications to key tax regulations, in particular Emergency Law No 27,541, passed on 21 December 2019. This new legislation increased applicable estate tax rates, allowing the Executive Branch to place even heavier tax burdens on foreign-held property. The Executive wasted no time in exercising these new powers and in Decree No 99/2019, imposed an annual estate tax rate of up to 2.5 per cent for all assets held abroad by Argentine taxpayers. The Decree was issued on 25 December 2019.
Consequently, those who had entered the amnesty programme rapidly faced substantial tax increases on their newly disclosed wealth. Unsurprisingly, tax planning advisory services have been in high demand, with many taxpayers opting for irrevocable trusts as a long-term strategy to mitigate the impact of these reforms.
In turn, Argentine tax authorities have vowed to scrutinise irrevocable trusts. Specifically, whether the settlor effectively and definitively has lost all control over the assets in question. Namely, tax auditors will be looking for any loopholes which could result in the settlor retaining some degree of decision-making power in managing the relevant assets.
In this context, it is reasonable to expect litigation on this matter in next few months, as taxpayers who opted for this structure file their tax declarations for the 2019 period. And due to the fact that these discussions normally involve high net worth individuals, it is also reasonable to assume that the amounts at stake will probably meet the minimum threshold for criminal court action on tax fraud.
There are, however, very few precedents on the matter, making it not entirely clear how federal criminal courts will react if government lawyers decide to challenge these structures under tax fraud provisions. Disputes are likely to hinge on the issue of control, meaning that taxpayers should be ready to show that they did in fact surrender all authority over the property in question.