Tax Treatment of Digital Services

I. Introduction

Law No. 27,430 introduced a new taxable event related to the provision of digital services by individuals or entities domiciled abroad whose use or effective exploitation is carried out in Argentina, as long as the customer is not subject to the tax of other taxable events and is not a registered taxpayer.

The Decree Decree No. 354/2018 (“Decree”) regulates this new taxable event.

II. Principal amendments

The Decree establishes that the tax as a consequence of the provision of digital services of the subparagraph e) of Article 1 of Law of Value Added Tax will be paid by the customer, directly or through a reverse withholding mechanism. If an intermediary, whether resident or domiciled in Argentina, intercedes in the payment, the intermediary will act as a reverse withholding mechanism agent. If there is more than one intermediary, the agent of reverse withholding will be the one that has the closest commercial relationship with the provider of the service. The entities providing collection services are included in this provision.

The agent of reverse withholding will be determined according to a list of providers of digital services (resident or domiciled abroad) issued by the Tax Authority. The list may also include provider of services whose activity is not limited to the provision of digital services. In this case, the payments will be deemed to be payments of digital services if the conditions established by the Tax Authority are met. Those conditions have not yet been issued.  Additionally, the list may be updated periodically.

If an intermediary, whether resident or domiciled in Argentine, is not involved in the provision of the digital service, the customer will have to pay the tax according to conditions to be issued by the Tax Authority.

Additionally, the Decree establishes that a provider of digital services will not be deemed as resident or domiciled abroad if said provider is deemed resident according to Income Tax Law.

This Decree will enter into force on April 25, 2018 and will be applicable when an intermediary, whether resident or domiciled in Argentina, intercedes in the payment, according to the publication of the Tax Authority’s list.

The applicable Tax Authority Resolution has not yet been issued.