Tax applied to gratuitous transfers of goods

The Legislature of the Province of Buenos Aires enacted Law No 14,044 (published in the Official Gazette on October 16, 2009) (The “Law”), introducing certain amendments to the Provincial Fiscal Code, among them, the inclusion of the tax applicable to gratuitous transfers of goods (the “Tax”).

The Tax applies to any increase in an individual’s wealth due to the receipt of a gratuitous transfer of assets.

The Law enumerates those acts subject to tax; namely: inheritances, legacies, gifts, gifts, waiver of rights, direct transfers or transfers through third parties in favor of descendants or the spouse of the transferor, contributions to companies and/or any other act entailing a gratuitous transfer of assets.

Likewise, the Law establishes presumptions for the applicability of this Tax, for instance, purchases made on behalf of descendants or adopted children; incorporations, increases, modifications and dissolutions of corporations among ancestors and descendants, including parents and adopted children, or their spouses.

Hence, according to this Tax, the following are deemed to be taxpayers:

The Law provides that any gratuitous transfer entailing assets for a value below AR$ 3,000,000 (approximately US$ 780,000 at the current exchange rate) is exempt from the Tax. However, if such value exceeds AR$ 3,000,000, all the assets transferred will be subject to the Tax.

The applicable tax rate under the Law is between 5% and 10.5%, depending on the amount of the assets involved and the relationship between the beneficiary and the transferor.

The legal representatives, testamentary executors and public notaries intervening in the transmissions subject to the Tax must act as withholding agents and ensure the payment of the Tax.

For the purpose of the Tax, the Law establishes special valuations, deductions (i.e., debts of the deceased) and exclusions (i.e., non-collectible credits, gifts subject to conditions).

The payment of the Tax shall be made by the beneficiary simultaneously or prior to any act of disposition of the assets reached by the Tax.

Despite the fact that each taxpayer owes the Tax due on its own wealth, the Law establishes that in the cases in which the benefit cannot be divided, taxpayers will be held liable for the total debt, as long as the lack of division lasts.

The Tax will be enforced from January 1, 2010; nevertheless, regulations are pending.