“Solidarity Contribution” on the Road to be Passed as Law

On September 25, 2020, the Budget and Finance Commission of the House of Representatives issued a declaration in favor of the creation of the “Solidarity Contribution” (the “Contribution”), which will be “extraordinary” and applicable only once. The draft law (the “Draft”) is expected to be approved in the following days by the House of Representatives and, later the Senate House may convert it into law.

The Contribution, whose real nature is that of a “tax”, will apply to individuals who were residents in Argentina on December 31, 2019, over all their assets, whether located in Argentina or abroad, and to non-resident individuals only over their assets located in Argentina. Moreover, the Contribution will also apply to individuals who are Argentine nationals and are residents of, or are domiciled in, “non-cooperative” or “low or no-tax” jurisdictions.

The Draft provides that the assets subject to the Contribution and their valuation follow the criteria established by the Personal Assets Tax Law. However, the exemptions and the “non-taxable minimum amount” provided by such law are not applicable to the Contribution. Among the assets subject to the Contribution, the Draft includes assets transferred to trusts, private foundations and other similar entities, and direct and indirect equity participations in partnerships or any kind of entities.

Although different versions of the Draft provided for different dates to define the assets subject to the Contribution (e.g. assets as of December 31, 2019, or as of March 31, 2020), the final version provides that the Contribution will apply to the assets existing at the date of entry into force of the law. Nevertheless, variations of the assets owned by a taxpayer during the immediate previous 180 days to the entry into force of the law, may be presumed as an evasive scheme or carried out to avoid the Contribution and, therefore, the Tax Authority (the “AFIP” after its acronym in Spanish) may determine that those assets are to be included in the determination of the amount to be paid for the Contribution.

The Contribution will only apply to the extent that the total value of the assets exceeds ARS 200,000,000. However, once the threshold is reached, the Contribution will apply over all the taxpayer’s assets.

Regarding the amounts to be paid, the Draft establishes progressive rates from 2% to 3.50% for assets located in Argentina and “aggravated” rates from 3% to 5.25% for assets located abroad. Nonetheless, the former rates will be applicable to the latter if the taxpayer opts to “repatriate” at least 30% of their foreign currency holdings located abroad, or of the revenue derived from the realization of their foreign financial assets. If the taxpayer opts to repatriate, the funds must be deposited with an Argentine financial institution before

December 31, 2021 and applied according to the regulations to be issued by the Argentine Executive. In the case of non-resident individuals, those Argentine taxpayers which have the possession, use, enjoyment, disposition, administration, etc. of the covered assets are designated as “substitute obligors” and must pay the corresponding amounts.

Finally, the Draft establishes specific assignations for the raised funds, instructions to the Argentine Executive for it to carry out a “federal application” of such funds, and a delegation of powers to the AFIP to regulate the application, perception and audit of the Contribution, and to issue further regulations regarding the terms and procedure of the payments.

It is possible that affected taxpayers, or at least many of them, will exercise their rights by means of different alternatives and strategies with aims of avoiding the payment of the Contribution. In such cases, besides the general arguments related to the fact that the Contribution might jeopardize acquired rights, the violation of equality, reasonability, ability-to-pay and non-confiscatory principles, it is also advisable to analyze each taxpayer’s specific situation.