City of Buenos Aires: Tax on Gross Income to Foreign Residents That Render Online Services to Access Movies, TV Programs, Videogames and Music

1. The Regime
Resolution No. 593/2014 (hereinafter, the “Resolution”) was published in the Official Gazette of the City of Buenos Aires on September 3, 2014 and will become effective on November 1, 2014.
The Resolution’s recitals explain the motivation of the Tax Authority of the City of Buenos Aires (the "AGIP") to provide a withholding tax regime applicable to Tax on Gross Income.  The Resolution states that e-commerce has created a change in commercial operations by carrying out electronic transactions. The AGIP pointed out that these changes may undermine the ability of the State to raise revenue via taxation and considered the new ways of payment that allow users and consumers to pay for products and services while safeguarding their financial information.
Therefore, the AGIP set forth a withholding tax regime applicable to online services to access movies, TV and other audiovisual entertainment transmitted over the Internet to televisions, computers and other devices connected to the Internet as well as the subscription to buy or rent digital content related to music, games, movies or similar contents.
The Resolution establishes that entities which issue credit, debit and charge cards that are involved in the operations referred to in the preceding paragraph should execute the withholding when payments are made to foreign residents that render such services. These entities will receive payments from users and consumers and, before transferring such funds to foreign residents, must withhold the tax pursuant to a rate of 3% over the net price of the transaction. Moreover, the Resolution sets forth that a non-taxable minimum is not applicable and that withholding entities should declare the sum withheld under the generic tax ID number of the country of origin of the service renderer.
Finally, the Resolution sets forth that withholdings executed should be deemed as final payment with regard to the Tax on Gross Income collected by City of Buenos Aires.

2.  Some Comments in Relation to the Regime
The taxable event of Tax on Gross Income in the City of Buenos Aires is configured by regular onerous commercial, industrial and professional activities within the territory of the City as well as services and other activities rendered/executed under same conditions. It is not clear if the services under the scope of the Resolution are deemed as rendered in or outside the City. In other words, it is not clear whether the one that renders the mentioned services (for example, on-line movies), is developing an activity within the city or not. If the conclusion is that services under the scope of the Resolution are rendered in an extraterritorial way (i.e. if they are rendered outside of the City), it could be upheld that AGIP not only would have established a tax-withholding regime applicable to Tax on Gross Income but also an autonomous taxable event of the latter, independent of the taxable event provided by the applicable tax law. In other words, while the applicable tax law only taxes territorial activities, the Resolution would purport to tax extraterritorial activities. The latter conclusion may also be upheld on the grounds that the Resolution does not discern between users or consumers domiciled in the City and users or consumers domiciled outside the City.
As a result of the above, if the purpose of the City of Buenos Aires is to expand the definition of the taxable event of the Tax on Gross Income, it was necessary to issue this law. In other terms, by application of the Rule of Law, the analyzed matters should be regulated by a law at the expense of a mere resolution.
From another standpoint, it is not clear which are the services or contents that are under the scope of the withholding tax regime, as the Resolution refers to “other types of audiovisual entertainment” and digital content related to music, games, videos, or “similar”.
The Resolution is the initiative of the City of Buenos Aires to effectively tax digital services provided by foreign residents. This raises a debate regarding the place where such services are rendered. It remains to be seen how this issue develops.