New Hydrocarbon Ventures: Tax Benefits of the Promotional Regime to the Province of Tierra del Fuego May be Reinstated

Law No.19,640 established a special tax and customs regime that exempts events, activities or operations that are carried out in the Province of Tierra del Fuego, Antártida e Islas del Atlántico Sur (Ex National Territory) from several federal taxes.

These benefits include taxes such as Income Tax, Value Added Tax, Import and Export Rights, Tax on Debits and Credits on Bank Accounts, Personal Assets Tax, etc.

The purpose of this law was to mitigate effects derived from the southern location of the territory in question and the direct consequences in terms of isolation, living conditions, development and level of economic activity, which merited the establishment of certain tax benefits.

Almost 40 years later, the Argentine Executive, through Section 1 of Decree No. 751/2012 (published in the Official Gazette on May 16, 2012) made use of a faculty that it considered to be conferred by Law No. 19,640 and abrogated the tax and customs benefits provided therein, for certain activities related to oil and gas production: extraction of crude oil and natural gas, service activities related to that extraction, except prospecting activities; and geological and prospecting services. This measure also reached exporters of such resources. On that opportunity, the Argentine Executive grounded the issuance of the decree on several reasons, all of them focused on reversing the role of Argentina as importer of natural resources, and complying with autonomy objectives.

Decree No. 1049/2018 was passed on November 14, 2018, which, in its recitals, without ignoring the main purpose of achieving hydrocarbons autonomy, also considered the need to encourage the development of new projects and investments to increase the production of crude oil and natural gas. For this reason, Section 1 of the Decree establishes that the activities related to the gas and oil production, linked to new hydrocarbon ventures are excluded from the provisions of the aforementioned Section 1 of Decree No. 751/2012, in accordance with the regulations to be issued by the Ministry of Finance through the Energy Secretariat. In other words, for these new ventures, the benefits provided by Law No. 19,640 would be reinstated to the extent that they are applicable according to the complementary and regulatory legislation of such law.

The Decree establishes that its provisions will come into force the day after its publication in the Official Gazette and will produce effects for the taxable events that are generated as of and for income accrued as of January 1, 2019.