Suspension of Payment Mechanism for Capital Gains Tax on Sale of Shares by Non-residents

1. Background

On September 23, 2013, Congress passed Law No 26,893, (applicable to taxable events occurring after said date) imposing a Capital Gains Tax on the gains recognized by nonresidents on the sale of shares, quotas or other equity participations in Argentine companies as well as “other securities” of Argentine residents at a rate of 15%. The seller may opt to determine the taxable income subject to tax under one of the following mechanisms: 

• Apply a deemed taxable base of 90% of the gross proceeds derived from the transaction. The effective rate is, therefore, 13.5% of the sale price; or
• Calculate the actual net income by offsetting from the sale price the cost basis and other expenses incurred to purchase the shares.   

Law No. 26,983 further provides that the buyer of Argentine shares, quotas or other equity participations or securities is in charge of paying the tax to the Argentine tax authorities, irrespective of whether the buyer is an Argentine resident or non-resident.  If the buyer were an Argentine resident, General Resolution 739 regulated the mechanism to pay the tax. However, until July 18, no effective mechanism was created to remit the Argentine nonresident Capital Gains Tax to the Argentine Tax Authority.
 

2. General Resolution 4094-E

General Resolution 4094-E (hereinafter, the “New Regulation”) distinguished between transactions executed through a stock exchange market or agency authorized by the Argentine Exchange Commission (“CNV”) and those that are executed privately.

1. Transactions executed through the Argentine Exchange Commission

Who is responsible for withholding and paying the tax? The authorized agent from the stock exchange market or agency that is involved in the transaction representing the non-resident seller.

Which information should the nonresident seller provide regarding the calculation of the net income subject to tax? Summary of transactions issued by the Securities Agency and the stock purchase agreements.

What is the payment mechanism? General Resolution 739, enacted in 1999 was deemed applicable by the New Regulation. General Resolution 739 established a withholding and payment mechanism applicable to local withholding agents.

2. Transactions privately executed

Who is responsible for paying the tax? The purchaser, regardless of whether the purchaser is a resident taxpayer or a nonresident entity or individual.

Which information should the nonresident seller provide regarding the calculation of the net income subject to tax? Records of previous acquisitions and subsequent sales of the shares, quotas or other equity participations.

What is the payment mechanism? If the buyer is a resident taxpayer, General Resolution 739 was applicable. If the buyer is a nonresident entity or individual, the buyer would have to order an international wire transfer from the Argentine Tax Authority’s Argentine bank account in US dollars on or before the fifth business day following the closing of the sale. The exchange rate would have to be calculated taking into account the sale value of the US dollar on the day before the wire transfer was ordered.
 

3. Information regime

Under the New Regulation, the local entity responsible for “registering the sale of shares with the competent official registry” would have to report the details of the transaction to the Argentine Tax Authority, including the identity of the relevant parties and a record of the international wire transfer or receipt of payment by the Argentine Tax Authority. The Resolution presumes that this information regime would be further regulated in the future. The wording of the regulation was somewhat confusing since, for example, the shares of Argentine Sociedades Anónima or S.A. are not registered with any official registry other than the entity’s own shareholder record.

In addition, Argentine entities whose shares, quotas or other equity participations are being transferred would request from the buyer the receipt of payment of the income tax derived from the transaction as well as the details of the transaction.
 

4. Entry into force

The New Regulation was supposed to enter into force on July 18, 2017 and was applicable to transactions executed on or after September 23, 2013. However, General Resolution (AFIP) 4095-E suspended the entry into force of General Resolution 4094-E for a period of180 days.

Regarding those transactions completed before the date of the entry into force, i.e. transactions completed between September 23, 2013 and July 18, 2017, the payment of the tax was considered timely if ordered on or before the last working day of the second month subsequent to the entry into force of the New Regulation (currently deferred for 180 days), in which case interest and fines would not be applicable.