Fighting tax evasion

1.   Amendments to the Income Tax Law

a) Foreign trade transactions and transfer pricing

In foreign trade transactions involving goods with a world price established in market conditions, such price shall be used in order to assess the Argentine-source net income, unless otherwise evidenced.

As regards exportation of cereals, oil grains, fruits, ground products or other goods with price known in transparent markets, where an international intermediary that is not the effective receiver of the goods participates in a given transaction, the deemed best method to assess the Argentine-source income is the quotation value of the good in the transparent market on the day the goods are loaded, without considering the price agreed with the international intermediary. If the price agreed with the intermediary were higher, this price must be used. This method can be disregarded if some requirements are met.

The Procedural Tax Law establishes a special fine for not fulfilling the obligation to inform the transactions of exportation or importation between independent parties.

b) Deductions for transactions with tax havens

In general terms, Argentine companies assess their income according to the accrual method. An exception to this principle are expenses incurred by local companies resulting in Argentine-source income for foreign individuals or entities with whom those local companies are related. The expenses may only be deducted if paid before the expiration date for filing the tax return. This limitation was extended to the expenses incurred by the same companies with individuals or entities set up, located or domiciled in tax havens, whether related or not.

c) Limits for the deduction of interest

The rules of infracapitalization are amended (limits provided in the Income Tax Law to deduct interest).

It is added that interest on debts (except the ones that, in general terms, have a withholding rate of 35%, similar to the companies’ tax rate) for loans incurred by Argentine companies (except financial entities subject to Law No 21,526) with non-resident individuals that control them shall not be deductible in excess of two times the net worth as of that date. Interest not subject to deduction have the same treatment as dividends.

d) Loans made by individuals to Argentine companies

When Argentine companies pay interest on loans whose beneficiaries are either individuals or undistributed estates domiciled or resident in Argentina, as the case may be, a withholding of 35% over the amount paid must be made, as an only and definitive payment.

e) Amendment to withholding rates over interest on payments abroad

On a first stage, a withholding at a reduced rate of 15.05% was applicable to the payment of interest abroad, when the creditor was a bank or financial entity located in jurisdictions applying certain bank standards. The amendment establishes that the reduced rate would only be applicable if those entities are located in countries not deemed tax havens, or in jurisdictions that have entered into agreements of exchange of information with Argentina, or in jurisdictions where bank secrecy, secrecy pertaining to stock exchange transactions or of other kind can not be alleged, in accordance with its local provisions upon a tax authority information request. Financial entities subject to the provisions of this paragraph are those under the supervision of the relevant Central Bank or equivalent agency.

A withholding rate of 35% is applied when the borrower is an Argentine entity (excluding financial entities) and the creditor does not fulfill the requirements of the above mentioned paragraph.

2.   Amendment to the Criminal Tax Law

The Federal Government submitted a bill to the Congress to incorporate the following paragraph as section 15 “bis” to the Criminal Tax Law:

“Regardless of the provisions of Title VIII, Chapter II of the Criminal Code, a punishment of three years and six months to ten years of prison will be applied to whoever is part of an association or organization comprised of three or more individuals aiming at making possible, facilitating or giving the necessary collaboration for the commitment of any of the crimes provided in this law, for the mere fact of being part of it. With respect to their organizers, the minimum legal penalty will be of five years of imprisonment”.

By means of the foregoing provision, penalties to whoever is part of an association whose purpose is to support or make possible the commitment of tax and social security crimes are incorporated. The constitutionality of this amendment is doubtful.

Furthermore, a special jurisdiction is created in order to judge the crimes provided by the Criminal Tax Law in the City of Buenos Aires. The Courts of economic tax crimes will continue dealing with not yet resolved cases.

3.   Value Added Tax

The regime applicable to non-registered taxpayers and low-income taxpayers (“monotributo”) is amended.

4.   Procedural Tax Law

a) Taxpayers liable for third party indebtedness

The law provides for the liability of several individuals for a third party indebtedness. Directors, managers and other representatives of legal entities are included. This liability, which is personal, joint and several, does not apply to the representatives evidencing they were not able to fulfill their tax duties because of actions of their represented entities. The exception does not apply to the representative of joint ventures regulated under sections 367 to 383 of the Argentine Companies’ Law, who are both responsible for a third party indebtedness.

Individuals or legal entities receiving unauthentic, unauthorized invoices or equivalent documents are responsible for a third party indebtedness if they are liable to verify that the issuer is legally authorized thereto (the amendment particularly includes the tax authority’s authorization to request this verification). In this case, they will be liable for the taxes owed by the issuer, arising from the transaction.

b) Presumptions

The law allows the tax authority to use presumptions to assess taxes, when there is evidence of failure in the accounting of the taxpayer. Some specific presumptions were incorporated and some others were amended.

When the tax authority detects a taxpayer undeclared patrimony, it is now presumed that it arises from undeclared income, plus 10% for non-deductible expenses or spent income. Moreover, they are deemed sales subject to Value Added Tax. Some amendments are incorporated in order to apply this presumption in the Value Added Tax.

A similar presumption is incorporated for inventory differences arising from controversy between the information of the taxpayer and the information of a satellite survey, for salaries paid to undeclared employees and for differences in the amount of salaries undeclared.

A similar presumption is incorporated for bank deposits (any amount that does not concern sales is excluded), exceeding the sales or income of the period. This presumptive method had been already accepted by certain court precedents.

The sums arising from tax havens are considered unjustified patrimonial increases of the receiver, with similar consequences as to those mentioned above. The tax authority may consider that the income arising from activities of the taxpayer or third parties in tax havens, or the income arising from timely stated investments is justified, if the taxpayer can evidence that fact.

c) Consequences of assessments arising from presumptions or transfer pricing

Tax authority assessments by means of presumptions or transfer pricing provisions (in the case of reports not submitted by the taxpayer or transactions or supporting documents not registered) are considered to be legal and correct. The taxpayer can only rebut those assessments through specific and authentic documents.

The amendment establishes the impossibility of claiming tax credits arising from those assessments.

d) Penalties

Provisions related to penalties for formal violations are amended. Legal events that allow the application of a closure punishment increase (for instance, the lack of supporting documentation evidencing the acquisition or holding of the goods required to develop the taxpayer’s activity).

Pursuant to the existing law, misleading tax returns or malicious concealment now provides for fines of two to ten times the omitted tax. This punishment is also extended to the event this does not result in omitted taxes, but, instead, in increased tax losses.

The amendment also incorporates a presumption of fraudulent tax evasion when a taxpayer has not submitted his tax return and the omitted tax is higher than $ 300,000.

The amendment modifies a reduction in penalties if the taxpayer spontaneously issues a rectifying sworn-statement, in different stages of the tax procedure.

e) Statute of limitations

A limitation period of five years is incorporated for the tax authority to demand unduly granted, reimbursed or transferred tax credits. The term is counted as from January 1 of the year following the date when they were credited, refunded or transferred.

The amendment also incorporates a five-year limitation period to claim for the reimbursement or collection of taxes. The term is counted as from January 1 of the year following the date when the refund was applicable.

It is determined in the bills that the limitation periods provided by the law will prevail over those of the Bankruptcy Law.