Personal Assets Tax and branches of foreign companies

On December 13, 2004, the Solicitor General (“Procurador del Tesoro de la Nación”) issued Opinion No 507/2005 in response to a query made by the corporation El Al Líneas Aéreas de Israel Ltda, asking if its Argentine branch was liable for the payment of Personal Assets Tax on behalf of its head-quarters.

It should be recalled that the Personal Assets Tax sets forth that the tax due to the equity participation in Argentine corporations (ruled by Law No 19,550) owned by foreign corporations must be paid to the fiscal authority by the local corporation as sole and definitive payment (foreseeing the possibility that the paying entity is entitled to seek recovery from the foreign entity). The tax liability is 0.5% of the proportional net worth value (“valor patrimonial proporcional”) of the shares or equity participation subject to the tax.Furthermore, the law’s regulatory decree sets forth that the permanent establishments of foreign corporations are included in the above mentioned rules. In other words, the regulatory decree includes the Argentine branches of foreign corporations among those who should act as substitute tax-payers.

The analysis of the Solicitor General was focused on corporate and tax issues, to finally conclude that the Argentine branch of the foreign corporation was not liable for the payment of the tax. The conclusion was based on the following arguments:

(a)   the foreign corporation, El Al Líneas Aéreas de Israel Ltda., was not and could not have been an equity holder of its Argentine branch, because branches do not have independent legal status (“personería jurídica”); they depend on their head-quarters and their net worth (“patrimonio”) belongs to the latter; and

(b)   consequently there were no shares of stock that could be subject to the tax; therefore, the irrefutable presumption contained in the law, pursuant to which the shares of stock or equity participation in a local corporation indirectly belong to an Argentine individual or estate, was not applicable.

To summarize, in Opinion No 507/2005 the General Solicitor concluded that the Argentine branch of a foreign corporation was neither liable for the payment of the Personal Assets Tax, nor liable on behalf of its head-quarters and that therefore it was not obliged to pay the tax. Because of the significance of the opinions issued by the General Solicitor, this is an extremely important precedent for Argentine branches of foreign corporations.