Tax Reform: Taxation of the Indirect Disposal of Assets located in Argentina

1. Introduction

On November 15, 2017, a bill for the amendment of the Argentine tax regime was submitted to Congress (“Tax reform”) by means of which the indirect disposal of assets in Argentina was included as a taxable event under certain conditions.

In the Tax Reform proposed by the Executive Branch the taxation of the disposal of shares owned by foreign residents when the target Company has assets located in Argentina is included as a new topic under income tax.

It should be highlighted that before this proposed Tax Reform, foreign residents were only taxed in Argentina for the direct disposal of shares located in Argentina.
 

2. Main aspects of the amendment

Among the main modifications introduced by the draft bill, those relating to Income Tax, Value Added Tax, Internal Taxes and the Tax on the Transfer of Real Estate are highlighted.

In line with the objective of transparency pursued by the draft bill, the presumption of income from Argentina was introduced into Income Tax Law when non-resident individuals transfer shares and participations of foreign entities whose underlying assets are fully or partly Argentine. This new concept is in the unnumbered article following Article 13 of Income Tax Law and is entitled "indirect disposal of assets located in t national territory."

This concept establishes that when a non-resident individual transfers shares, quotas, participations and other rights representative of the capital or equity of an entity incorporated, domiciled or located abroad, the resulting income will be considered as Argentine source income as long as the following conditions prevail:

1) The value of the shares, participations or rights of the foreign entity, at the time of sale or in any of the twelve (12) previous months, represent, at least, thirty percent (30%) of the value of the assets that the entity owns directly or indirectly in the Argentine Republic.

Argentine assets will be valued at current average cost and will include:

(i) the shares, rights, quotas or other participation certificates in the ownership, control or profits of a company, fund, trust or other entity incorporated in the Argentine Republic;

(ii) permanent establishments in the Argentine Republic belonging to a non-resident person or entity;

(iii) other assets of any nature located in the Argentine Republic or rights over them.
 

2) Sold shares, participations or rights of the foreign entity represent ten percent (10%) of the equity of that entity, at the time of their disposal or in any of the twelve (12) previous months.

For this purpose, disposals are included both by the individual itself and those made jointly with entities over which it has control or a relationship, with spouse, cohabitant or with other taxpayers linked by family relationship, ascending, descending or collateral line, by kinship or affinity, up to the third degree inclusively.