Income Tax: sale of stock and real estate

The President of the Budget Commission of the Senate, Mr. Jorge Capitanich, sent recently to the Senate a bill of law to amend the Income Tax Law (the “Bill”). It seems that the main goal of the Bill is to reach again with the Income Tax the gains obtained by Argentine individuals arising from the sale of stock. Furthermore, it would have other important consequences.

The tax treatment of gains obtained by Argentine individuals (and “off-shore” entities) arising from the sale of stock has changed during the last couple of years, making such treatment a little unclear. As a matter of fact, after (i) Law No 25,414 (passed on March, 2001) that granted the Executive the power to abrogate tax exemptions; (ii) Regulatory Decree No 493/01 (passed on March 2001); and (iii) Law No 25,556 (passed on December 2001), which abrogated Law No 25,414, the tax treatment applicable to gains obtained by Argentine individuals from the sale of unlisted stock was not clear. Notwithstanding the foregoing, as of the issuance of Opinion No 351/03 by the Attorney General (Procurador General del Tesoro de la Nación) on July 3, 2003, it is understood that gains obtained by Argentine individuals (and “off-shore” entities) from the sale of stock, whether listed or unlisted, are not subject to the Income Tax. The Bill is intended to change such treatment. Its main amendments are:

(i) Incorporates the amendments introduced by Regulatory Decree No 493/01 “as of the date of its respective publication” (April 30, 2001). As a consequence of that, gains obtained by Argentine-individuals (and “off-shore” entities) from the sale of unlisted stock would be subject to the Income Tax again, with a sort of retroactive effect (the extent of such retroactivity is not very clear). The 15% maximum rate applicable to gains arising from the sale of stock held for at least 12 months would be applicable again.

(ii) Replaces Section 2, clause 3 of the Income Tax Law, setting forth the taxability for all taxpayers of not only income arising from the sale of depreciable assets (bienes muebles amortizables), stock, bonds and other securities (títulos valores), as stated in the law after the amendment by the Law No 25,414, but also from the sale of “real estate, quotas or any form of equity, and interest in mutual funds” (fondos comunes de inversión). The Bill states a 15% maximum rate applicable to income arising from the sale of real estate held for at least 24 months.

(iii) As a logical consequence of the taxability of the income arising from the sale of real estate, it abrogates the Tax on the Transfer of Real Estate (Impuesto a la Transferencia de Inmuebles) applicable to individuals.

(iv) It taxes income arising from the sale of pieces of art, pieces of collection and antiques when exceeding 10% of their acquisition cost. Furthermore, it also sets forth that any losses arising therefrom will not be deductible for Income Tax purposes.

(v) Except for the amendments of Regulatory Decree No 493/01, which would be reinstated as of the date of their original publication, the remaining amendments would be effective as of their publication in the Official Gazette and for the fiscal years closing after its enforceability, or the current fiscal year as of that date. Therefore, it could be understood that such amendments would be applicable for individuals as of the year of the publication of the Bill, presumably 2004, reaching transactions entered into as of January 1, 2004.