New Withholding Regime for Futures Contracts

Before analyzing the regulation, we would like to clarify certain aspects of the mechanics of future contracts:

a. The price of the underlying asset (foreign currency) in the contract will be used at its settlement at maturity, but not in the daily settlements that occur before its maturity since the latter are based on the market price of the agreement.

b. The contract will remain open as from its execution date until its maturity date or the closeout of the agreement in advance of the maturity of the contract.

c. While the position is opened, the clearing house performs daily settlements based on the differences between the market value of the contract of the prior day and the current day (this process is known as "marking to market"). Therefore, open contracts generate gains or losses on a daily basis as a result of their volatile market price. The profits, if any, can be withdrawn from the account where they are credited by the clearing house.

Within this framework, the Federal Tax Authority (AFIP) had established a withholding regime for opened futures contracts on foreign currency which is applicable to the income of the buyer or seller derived from the difference between:

1. “the amount of the transaction at the last price at which it has been marked to market,  and
2. the amount calculated based on the price at the moment of the maturity of the contract or the early close out of the agreement, if that occurs”

Although the ruling is not completely clear, a literal interpretation may lead to consider that the withholding applies only to the last daily settlement of the agreement, whether it occurs at maturity or at the closeout of the contract since the disposition compares “the price at the moment of the maturity of the contract or the early closeout of the agreement” with the last price of the market value of the contract, corresponding to the prior day.

The withholding applies to Argentine residents (either buyers or sellers) and will be determined according to the following tax rates: (i) 35% if the buyer or seller is a legal entity. In such case, the withholding can be considered as a “payment in account” for the income tax of the fiscal year in which the withholding has been made. (ii) 0.5% if the buyer or seller is an individual. In such case, the withholding can be considered as a “payment in account” for the tax on personal assets of the fiscal year in which the withholding has been made.

The withholding agents are “the agents authorized to operate in markets regulated by the Argentine Securities Commission for operations related to futures over “peso-dollar” exchange rates which act in their capacity as paying agents of the settlements”.

They must withhold at the moment of paying the settlement, according to the procedures, timelines and conditions established in General Resolution No. 2233 as amended (SICORE).

If the withholding has been practiced in excess, the open balance in favor of the taxpayer (either for the income tax or the tax on personal assets) must be considered as a “direct payment” and can be applied to fulfill other tax obligations.

On the other hand, if the individuals or legal entities who suffered the withholding are not taxpayers of income tax or the tax on personal assets, they will be able to request the refund according to General Resolution (DGI) No. 2224.

For the record, these transactions are excluded from the withholding regime provided for in General Resolution (AFIP) No. 830 as amended.

The provisions under General Resolution (AFIP) No. 3818 will enter into force as from December 17, 2015 (date of publication in the Official Gazette) and it applies to “operations whose contracts have been executed as of December 17, 2015 and are currently in force, until they are terminated or all the agreed settlements are perfected.”