Tax benefits for exploration and exploitation of hydrocarbons

The tax benefits basically consist of the accelerated reimbursement of Value Added Tax (“VAT”) or accelerated depreciation for income tax of investment in infrastructure work; the exemption from customs for the import of assets and non-taxability on Presumed Minimum Income Tax on goods used for the activities being promoted.

The most important aspects of the regime are the following:

a) Investments may be made in unexploited areas granted as concessions under Law No 17,319 and in areas which are presently not subject to an exploration permit and/or concession.

b) When it comes to areas already granted under Law No 17,319, concessionaries may ask for an authorization to subdivide the area in order to create a new area subjected to the benefits.

c) Areas will be allotted by means of “concurso público” or any other mechanisms legally authorized under each jurisdiction. Concessionaries that have subdivided areas already granted under Law No 17,319 shall have the right to equal the offers made by other solicitors.

d) In order to obtain the tax benefits, the public company Energía Argentina Sociedad Anónima (“ENARSA”) must be part, by association, of the permission of exploration and the subsequent exploitation concession.

e) The benefits of accelerated reimbursement of the VAT and the accelerated depreciation of assets in the income tax are the regimes established under Law No 25,924 (see “New tax measures to promote investments. Cont.” in Marval News # 31 of August 31, 2004). This Law allows to use the balance in favor of VAT to pay other federal taxes or, if applicable, to request reimbursement. As regards the accelerated depreciation in Income Tax, Law No 25,924 reduces the useful life of infrastructure works by 50%, 60% and 70%, depending on the date when investments began. Investors may choose one of these two benefits. It is possible that tax benefits under Law No 25,924 need to be adapted to the specific features of the present bill.

f) The import of assets to be used for the promoted activities that are not manufactured in Argentina will be exempt from the payment of import rights and from any other right, tax or statistics rate, except those duties paid in exchange for the rendering of services. The relevant Authority will make a list with the assets subject to this benefit.

g) The assets used for the promoted activities will not be part of the tax base for the Tax on Minimum Presumed Income for a term of three years.

Tax benefits of the accelerated reimbursement of VAT or the accelerated depreciation of assets in income tax and the exemption for customs will be granted for fifteen years if investments are made in new areas. The term will be ten years if investments are made in areas already in concession under Law No 17,319.