Double Taxation Convention between Argentina and China

There are different standards to narrow the scope of tax authorities’ power to tax. Argentina has, like most countries, adopted the “worldwide income” criterion based on “residence”, instead of following the source criterion.

According to the “worldwide income” criterion, residents are taxed on their worldwide income, whereas non-residents are only taxed in the country where the income is generated (source taxation).

Therefore, on some occasions, there is  “double taxation” which means the same taxable event (income or assets) is being levied in two different countries and taxes must be paid in both jurisdictions.

Double Taxation Agreements resolve this problem by the following means: (i) they impose limits on the taxation in the source country; (ii) they determine in which cases the taxpayer is established permanently; (iii) they incorporate methods to avoid double taxation. 

One of these agreements is the Double Taxation Agreement on Income and on Capital Taxes between Argentina and China (“DTT”).

In general terms, the Convention establishes the following regulations:

a. Corporate profits: The profits of an enterprise of a Contracting State are taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only as much of them as is attributable to that permanent establishment.

b. Dividend payments: Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State; however, the amount of the tax imposed at source must not exceed: a) 10 per cent of the gross amount of the dividends if the beneficial owner is a company which holds directly at least 25 per cent of the capital of the company paying the dividends throughout a 365 day period that includes the day of the payment of the dividend; or b) 15 per cent of the gross amount of the dividends in all other cases.

c. Interest payments: They may be levied at source, but the amount of the tax must not exceed 12% of the gross amount of the interest payment. The DTT establishes certain cases in which interest must be exempted from tax in the Contracting State in which it arises.

d. Royalties: they may subject to tax in the Contracting State in which they arise with the following limits: (i) 3% of the gross amount for the use or the right to use of news; (ii) 5% of the gross amount for the use or the right to use of copyright of literary, artistic or scientific works; (iii) 7% of the gross amount for the use or the right to use of containers; or (iv) 10% for all the remaining cases.

e. Capital gains: Capital gains derived by a resident of a Contracting State from the alienation of shares representing the capital of a company that is a resident of the other Contracting State may be taxed in that other State, but the tax so charged must not exceed: a) 10 per cent of the gain if the alienator, at any time during the 365 days preceding such alienation, held directly or indirectly at least 25 per cent of the capital of that company; or b) 15 per cent of the gain in all other cases.

f. Capital: The assets from a resident of one country and located in the other country may be taxable in both countries, if they are not related to ships or aircraft.

g. Method to avoid double taxation: The Conventions provide a tax credit as the method to avoid double taxation. Where the income derived from Argentina is a dividend paid by a company which is a resident of Argentina to a company which is a resident of China and which owns not less than 10 per cent of the shares of the company paying the dividend, the credit must take into account the tax paid to Argentina by the company paying the dividend in respect of its income.

h. Exchange of Information: The Convention incorporates a provision regarding the exchange of tax information between the competent authorities from both Contracting States.

Argentina and China must notify each other through diplomatic channels that they have completed the internal legal procedures necessary for the entry into force of the DTT. The Convention enters into force on the thirtieth day upon the receipt of the latter notification.

The provisions of the DTT have effect a) in respect of taxes withheld at source, on amounts paid on or after the first day of January, in the calendar year next following that in which the DTT enters into force; and b) in respect of other taxes on income and on capital, for fiscal years beginning on or after the first day of January, in the calendar year next following that in which the Agreement enters into force.