New withholding regime for personal pension contributions by directors

1. New regime

General Resolution 1709 of the Argentine Tax Authority (“AFIP”) established a new withholding regime for personal pension contributions by self-employed workers acting on a regular basis in management, administration, or leadership of commercial companies and civil associations (hereinafter the “directors”).

As of its coming into effect, commercial companies and civil associations, regularly incorporated in Argentina (hereinafter 'the company') shall act as withholding agents. The Resolution expressly excludes irregular corporations or de facto business associations from the obligation to withhold.

Article 4 determines that withholdings shall be made from self-employed (“autónomos”) workers registered with the AFIP in the Integrated Pensions and Death Benefits System (SIJP) under categories 'D', 'E' or higher.

The company must determine on a biannual basis, from the AFIP website (www.afip.gov.ar), the directors’ status of taxpayer registered with the AFIP and the particular category in which he/she is included.

Once this determination has been made, and according to the result obtained, the company is obliged to report to the AFIP the name of the directors who are not registered with the AFIP.

The directors must report to the company any change in category or status, within 5 working days of occurred.

2. Persons excluded from the withholding regime

Article 7 of the AFIP Resolution excludes from the present withholding regime:

a) persons evidencing that they have paid all their personal contributions as self-employed;

b) beneficiaries of the national or provincial pension regimes, who are:

(i) exempt from making personal contributions;

(ii) mandatorily included in category "A".

3. Occasions on which the withholding must be made

Withholdings must be made at the time the company makes any payment, for any reason, to the directors that are subject to it.

This withholding regime does not apply when the payment is fully made in kind.

The company will also be obliged to withhold when:

a) the beneficiary of the payment has not presented the necessary documentation to evidence that he/she is excluded from the withholding regime;

b) documentation presented was incomplete;

c) the amount of principal paid -directly by the director or by means of this withholding regime- is lower than that due, as a result of the category in which he/she is comprised or which proves applicable according to the personnel employed by the company making the payment.

4. Determination of the sum to be withheld

The amount of the withholding shall be equivalent to the principal owed by the director as personal pension contributions, due from the first day of January of the relevant year, up to the date when the payment is made.

To that effect, the number of months due must be multiplied by the value of the personal contribution effective at the date of payment, corresponding to the category in which the self-employed worker is included or that which is applicable according to the personnel employed by the company making the payment.

The company shall deduct the amount to be withheld from the sum of the payment to be made to the director.

If the withholding to be made proves higher than the amount of the payment to be made, the withholding shall be made up to the latter amount. The amount in excess of the withholding not retained will be deducted from later payments to be made.

In the event the amount of the personal contributions paid by the director are lower than that actually owed, the amount to be retained shall be equivalent to the difference in principal due by said person.

5. Minimum withholding amounts

The minimum withholding amount shall be that corresponding to the category that proves applicable to the director, according to the personnel employed by the company making the payment.

The applicable categories, according to the personnel employed by the commercial companies and civil associations -regularly incorporated in Argentina- are the following:

a) up to 10 workers employed, category 'D';

b) over 10 workers employed, category 'E'.

6. Deposit and reporting of the withholding made

The amounts withheld must be deposited and reported within 3 administrative working days immediately following the closing of each of the periods set out below:

a) from and including the first to the fifteenth calendar day of the month;

b) from and including the sixteenth to the last calendar day of the month.

Companies must deliver to the directors the voucher of the withholding made. If the director does not receive this voucher he/she must report this situation within 5 administrative working days, counted as of the date on which the withholding was made. This report shall be made by filing a note with the AFIP agency where the director is registered.

7. Interest

The directors who are subject to the withholding determined by this Resolution must pay the interest that could prove applicable for late payment and, if applicable, the difference in relation to the principal not covered by the withholding made.

8. Penalties

The company that does not withhold or does not deposit the withheld amount -whether in full or in part-, or that incurs in default on the obligations set out in this Resolution, shall be sanctioned with the penalties provided for in Law No 11,683 (Law of Fiscal Procedure), by Law No 24,769 (Criminal Tax Schedule) and by Resolution No 1566 (Obligations of the Social Security System).

Moreover, the company shall be obliged to pay the interest that accrues for overdue payment of the amounts withheld.

9. Effectiveness

The provisions set out in the Resolution shall be applicable for payments to be made as of October 1, 2004.