New Definition of the Concept “Low or Zero Taxation Countries”

Importance of the topic

The consideration of a jurisdiction as a country that holds the condition of “low or zero taxation” has practical implications in matters such as transfer pricing, payment of interest overseas, presumption consisting that the funds from those jurisdictions are unjustified increases of assets, etc.

Regulatory evolution

Law No. 25,063, issued on December 1998, incorporated to the Income Tax Law (hereinafter, “LIG”) provisions about transfer prices and established the following presumption outlined below. This was that unless proven contrary, in international operations held by Argentine companies and entities or individuals constituted, established or domiciled in low taxation jurisdictions, the prices of those operations had not been agreed as prices agreed by independent parties in comparable operations.

In order to complement those modifications, the Federal Tax Authority (hereinafter “AFIP”) issued several regulations. For example, General Resolution No. 702 was issued in October 1999. It defined countries of low or zero taxation as those countries in which there was a null or low effective taxation related to the income of entities or individuals. In addition, it took into account certain economic activities and verified the existence of certain circumstances (for example, existence of tax, banking or financial secrecy, a particular tax regime for non-residents that contemplates benefits that are not extended to residents, etc.) or the absence of certain circumstances (for example, mandatory registration of societies in the corresponding records, nominative shares regime, tax withholding at source, on the interest or dividends paid to residents abroad, etc.).

Concerning such definition, during this stage, the classification of a country as of low or no taxation was determined on a case-by-case basis.

Law No. 25,239, enacted on December 1999, amended the LIG and determined that the regulatory decree (hereinafter, "RD") ought to establish which countries were of low or zero taxation. Thus, on November 2000, the National Executive issued Decree No. 1037, which amended the RD, and incorporated a list of 88 countries considered of low or zero taxation. Any country that was not included in that list would not be included in the outlined condition.

As a result, at this second stage it was the National Executive itself that analyzed which countries met the features described and made a list of those countries classified of low or zero taxation, by dictating the relevant decrees. The experience shows one amendment to the DR, incorporated by Decree No. 115/2003, through which Nevis Island was removed from the list, and Luxembourg was considered as a low or zero taxation jurisdiction but only in relation to its Holding Companies regime (Law issued on July 31, 1929).

Decree No. 589/2013 (hereinafter, “Decree”) establishes that any reference made by the LIG and the RD about countries of low or zero taxation, shall be understood to refer to countries not considered as "cooperating for the purpose of fiscal transparency".

The Decree also determines that cooperative countries will be those which signed an agreement for the exchange of information on tax matters or a convention to avoid double international taxation with broadly interpreting information exchange clauses (hereinafter "Conventions") with the Government of Argentina (hereinafter "Government").

Cooperative country status shall be cancelled when the Conventions are denounced, no longer have application or when, despite the full implementation of the Conventions, the AFIP verifies a lack of effective exchange of tax information between the countries.

When the respective country has begun negotiations to sign any of the Conventions with the Government, consideration as cooperative country may also be recognized.

Finally, the Decree empowers the AFIP to analyze the effective exchange of tax information between countries that signed any of the Conventions and to draw up, publish and keep a list of countries, domains, jurisdictions, territories, associated states, or special tax regimes considered as cooperative countries up to date.

Although the Decree is already in force, it determines that its provisions shall apply from the day in which the AFIP publishes the list of Cooperative Countries. To date, the mentioned list has not been published.