Promotional Program to Develop and Bolster the Argentine Auto Parts Industry

On August 1, 2016 Law No. 27,263 (“Law”) was published in the Official Gazette. The Law establishes a promotional program for national auto parts production (parts, components, subassemblies, assemblies and component systems of vehicles or auto parts) for certain products.

The goods that are subject to the benefit will be listed with their tariff codes by the Secretary of Industry and Services, the authority designated for the implementation of the Law

Only those who have an industrial establishment situated in Argentina that include Argentine auto parts in the manufacturing of the products listed in Section 4 are allowed to adhere to the program, so long as they can prove that a certain Argentine-sourced minimum content is included.

“a) Automobiles: Argentine-sourced Minimum Content of 30%.

b) Utility vehicles with a load capacity up to one thousand five hundred kilograms (1.500 kg): Argentine-sourced Minimum Content of 30%.

c) Lighter commercial vehicles with a load capacity of more than one thousand five hundred kilograms (1.500 kg.) and up to five thousand kilograms (5.000 kg.): Argentine-sourced Minimum Content of 25%.

d) Trucks, chassis with and without cabin, and buses: Argentine-sourced Minimum Content of 25

e) Trailers and semi-trailers: Argentine-sourced Minimum Content of 30 %.

f) Agricultural and vial self-propelled machinery: Argentine-sourced Minimum Content of 30 %.

g) Internal combustion, hybrids or other engines: Argentine-sourced Minimum Content of 10% during the first 3 years from the granting of the benefits, and of 20% thereafter. 

h) Transmission systems and its components: Argentine-sourced Minimum Content of 30 %,

i) Other auto parts systems, assemblies and subassemblies defined by the Enforcement Authority”.

Section 6 establishes that the benefit will be applicable for “the purchase of new headquarters manufactured in the country for affixing, filling, punching or forging new molds for injection, compression or forging of metals as well as injection or compression of plastic or rubber, its caliber of specific use and new tools for foundry for the production of auto components of goods listed in Article 4”.

When the Argentine-sourced Minimum Content is requested, the Enforcement Authority is allowed to make exceptions. For example, if the applicant uses motorized technology (hybrid, electric, hydrogen, etc.).

Electronic tax credit bond benefit

The benefit granted by the Law consists of an electronic tax credit bond that can be used for the payment of national taxes and also allows them to be transferred to a third party. It can be applicable to the payment of the Tax Returns and payments in lieu of the following taxes:

1. Income tax
2. Presumed minimum income tax
3. Value added tax  (VAT)
4. Excise tax
5. Regarding importations, beneficiaries may compute the credit as payments in lieu of excise tax, income tax and VAT, its retentions and perceptions, that the Argentine Tax Authority has the power to collect.

The law invites the provinces, municipalities and the City of Buenos Aires to adhere to the promotional program through the extension of the electronic tax credit bond for the payment of provincial and municipal taxes.

Section 19 of Law 27,263 establishes an important restriction: " it cannot be used to pay off previous debts of the effective incorporation of the beneficiary to the rules of this program neither for the cancellation of tax obligations arising from the substitution or joint and several liability, of taxpayers of third-party debt, or for their role as retention or collection agent."

In connection with the amount of the electronic tax credit bond, it is granted upon an amount equal to a percentage, which varies from 4% to 15%, from the value ex-factory of national auto parts, net of VAT, financial expenses, discounts and reductions.

The percentage depends on the national content of the goods listed in Section 4, and can be determined depending on the table that is in Law 27,263.

The percentage to be applied in the case of goods listed in Section 6 will be 8% of the value ex-factory of national auto parts, net of VAT, financial expenses, discounts and reductions.

Additional benefits related to foreign trade

Benefit related to exportation: If the domestic products that local suppliers provide are traded in significant volumes to third countries (and/or are part of a process of internationalization of auto parts companies) they may request an increase of up to five percentage points above the national content, which will result in a higher percentage of the electronic tax credit bond.

Benefit related to importation: (for the following goods: "new headquarters manufactured in the country for affixing, filling, punching or forging new molds for injection, compression or forging of metals as well as injection or compression of plastic or rubber, its caliber of specific use and new tools for foundry for the production of auto components of goods listed in Article 4”).

When goods mentioned are made from imported origin and are associated with projects approved for production, extra-zone import duty is equal to 0% under one condition: if "the sum of its value does not exceed 50% to of goods of national origin acquired locally or produced in house, regardless of the end user of the same”.

Requirements

To enjoy the program’s benefits, beneficiaries must meet some requirements:

1. Submit application to adhere to the regime with a detail of local suppliers, locally produced parts that will be provided by each local supplier and purchasing volumes expected during the term of the project. Also there must be an authentic document setting out predictability requirements regarding the minimum purchase volumes expected, provided in the application for the benefit.

2. To maintain the monthly number of workers as employees. To do this, beneficiaries must:

1. Fill in a statement of the monthly number of workers as employees, duly registered, of the period between July 2015 and June 2016, inclusive;
2. In December of each year, fill in a statement assuming the commitment "written and with the participation of the signatory’s trade union collective labor agreement in force, not to reduce the number of staff taking as a baseline the number of workers average monthly arising of the provisions of the preceding paragraph, or apply suspensions without pay" .

In the case of new companies, the Ministry of Industry and Services will establish the minimum number of staff required to access this regime.

3. If an advance of up to 15% of the total expected profit is requested, during the first 5 years that the projects have been approved (for the development of suppliers) guarantees for the entire advance payment must be provided.

Term

Law 27,263 establishes the deadline to apply for adhering to the regime as 10 years from the date when the regulation’s regime is issued, while the benefits can be enjoyed for the duration of the project. However, if the request is submitted after the first 5 years, benefits may be enjoyed until the 12th year from the date of the regulation.