Personal Assets Tax on Cryptocurrencies: Argentine Tax Authority Changes Criterion

Through Opinion No. 2/2022, issued on June 16, 2022, and published in July 2022, the Argentine Tax Authority referred to the legal nature of cryptocurrencies and their treatment within the Personal Assets Tax, modifying its previous position, which exempted these assets from the Personal Assets Tax.

 

1. Background

 

Individuals and undivided estates residing in Argentina or abroad (in this last case, only with respect to assets located in Argentina) are subject to the Personal Assets Tax, a tax levied on the possession of assets located in Argentina or abroad by December 31 of each year.

Regarding cryptocurrencies or other crypto assets, the current regulations do not have specific rules as to their tax treatment. Hence, the development of this market has caused a great deal of controversy on whether holding cryptocurrencies should or should not be subject to tax, and how to determine the relevant tax, if applicable.

In 2019, the Argentine Tax Authority (AFIP) addressed this issue for the first time. At that time, AFIP concluded that cryptocurrencies qualified as "intangible assets" under the terms of Section 19 Subsection m) of the Personal Assets Tax Law. Consequently, it considered that cryptocurrencies were exempted, following Section 21 Subsection d) of the same law.

In this context, through the recent issuance of Opinion No. 2/2022, AFIP modified the position previously adopted.

 

2. Opinion No. 2/2022

 

In the Opinion, AFIP analyzed an internal query requesting its Legal Department to review the position adopted in its previous opinion of 2019 about the legal nature of cryptocurrencies and their consequent treatment in connection with the Personal Assets Tax.

AFIP reviewed the case and modified its former opinion after considering there was a change in international and domestic taxation of crypto assets. The change of opinion was based on the following grounds:

(i) At the international level, the OECD has started to develop a new transparency framework for the automatic exchange of information on crypto assets called CRYPTO ASSET REPORTING FRAMEWORKS AND AMENDMENTS (CARF), which aims at collecting and exchanging information between tax administrations regarding persons involved in crypto asset transactions. The definition of crypto assets under CARF, in line with FATF recommendations, focuses on the use of blockchain technology. It mainly targets those assets that can be held and transferred in a decentralized manner, without the intervention of traditional financial intermediaries, including stable currencies, derivatives issued in the form of crypto assets, and some non-fungible tokens (NFTs).

(ii) At the domestic level, the Argentine Executive Branch sent to Congress a bill to amend the Law on Prevention of Money Laundering and Terrorist Financing, which includes a definition of virtual assets in line with the FATF international standard.

(iii) Regarding local tax matters, the amendments made to the Income Tax Law in 2018 established the taxation of results derived from the sale of "digital currencies". Likewise, regarding Tax on Credits and Debits and other bank operations, the exemptions applying to the moving of funds related to transactions with crypto assets, cryptocurrencies, digital currencies, or similar instruments were recently eliminated. According to AFIP, these modifications reflect the legislative intention to include crypto assets as an event that creates tax liability, since they indicate taxpayer's contributive capacity.

(iv) Section 1820 of the Civil and Commercial Code authorizes the freedom to create securities for public offering, stating that any person may create and issue securities of the types and under the conditions that person chooses, as long as they are intended for public offering. This allows to include any instrument that has an underlying right within the concept of "security". In this sense, AFIP quotes the opinion of certain specialists who sustain that crypto assets are an electronic notation incorporating the right to receive an amount of money and, since they do not have the backing of any Central Bank, they may be regarded as "improper securities".

(v) Later, AFIP refers to the Capital Market Law definition of "tradable securities" and concludes that "it should be noticed that the term ‘tradable security’ covers all those assets which, representing a homogeneous and fungible security or credit right, and included in a registry of entries, allow their negotiation and generalized traffic, including crypto assets”.

On these grounds, AFIP concludes that crypto assets do not share their nature with the intangible assets listed in Section 19 Subsection m) of the law, as the latter relate to different expressions of intellectual property and to how their development benefits the progress of society.

Based on this understanding, AFIP considers that cryptocurrencies can be described as a new type of non-traditional financial asset based on blockchain technology, which is –in short– an electronic notation incorporating the right to a certain amount of money.

Following this line of thought, it concludes that cryptocurrencies can be typified as securities, since they share their main characteristics with such assets: they are securities incorporated into a book-entry registry (the blockchain), they are homogeneous and fungible goods as stated in section 232 of the Civil and Commercial Code, their issuance or grouping is carried out in series formed by each block that integrates the chain, and they can be subject to generalized and impersonal traffic in financial markets.

As a result, AFIP understands that cryptocurrencies are financial assets subject to the law, in accordance with the provisions of Section 9 subsection j), and Section 22 subsection h) of the Personal Assets Tax Law. 

3. Closing Remarks

 

It is worth noting that, although the Personal Assets Tax Law has not been amended, this Opinion reflects AFIP's position in this controversial matter and sets forth the criteria its officials will have to apply.

In principle, the position adopted in this Opinion –that cryptocurrencies do not qualify as "intangible assets" listed in the law and that, therefore, they do not fall within the scope of the exemption provided for such assets– seems reasonable and in line with the worldwide trend.

However, the comparison of cryptocurrencies to a "security" might be controversial. In that sense, by treating cryptocurrencies as a security, the taxable base may be difficult to determine, due to the lack of quotation or market value of these assets.

Finally, although AFIP does not explain in which cases crypto assets would be deemed to be located in Argentina or abroad, the Opinion ends up including them in Section 19, Subsection j) of the law, which refers to assets located in the country. The lack of a clear legal framework on this point also makes it difficult to determine which should be the applicable tax rate. If the cryptocurrencies are considered to be in Argentina, the tax rates may vary between 0.50% and 1.75%; and if they are located abroad, the tax rates increase from 0.70% to 2.25%.