The current situation of the tax and exchange stability in mining – Decree No 417/03

This article is an update of the one published in Marval News #11, October 2002 (“The current situation of the tax and exchange stability in mining”) as a result of the issuance of Decree No 417/03.

At first we will review the background of this matter and then analyze the scope of Decree No 417/03.

1. Background

In 1964, by means of Decree No 2581/64, exporters were obliged to transfer to Argentina the value of domestic goods which had been exported, and to sell such foreign currency within the term provided by the applicable regulations in the local market.

Under the program of liberalization of the Argentine economy in force in the early 90s, Decree No 530/91 repealed the regime established by Decree No 2581/64 and, therefore, provided that the exporters were no longer required to transfer the proceeds of their exports into the country and to sell such foreign currency in the local market. Exporters were then able to keep the entire proceeds of their exports abroad.

In 1993 Mining Investment Law No 24,196 was passed (the “MIL”). The MIL (section 8) guarantees tax and exchange stability for a term of 30 years counted as from submission of the feasibility survey for all companies registered with the Argentine Mining Sub-Secretary. The rate of exchange and reimbursements, drawbacks and/or return of taxes on account of exports are excluded from exchange stability. Several companies obtained exchange stability while the regime of free disposition of exports proceeds, as provided under Decree No 530/91, was in force.

In 2001, Emergency Decree No 1606/01 repealed Decree No 530/91 and reinstated the effectiveness of Decree No 2581/64, and thus the obligation of the exporters to sell the proceeds of their exports in the local market was established once more.

In 2001, Decree No 1638/01 provided that those activities which enjoyed a specific exemption granted by law (i.e., the MIL) were not required to transfer the proceeds of their exports into the country.

Two mining companies, which had obtained exchange stability while the free disposition regime was in force, requested the Argentine Central Bank to pass a resolution authorizing them to freely dispose of the proceeds of their exports and to be excluded from the obligation to transfer such proceeds back to the country.

Following the filing made by these companies, two contradicting opinions were issued: the Legal Department of the Ministry of Economy supported the position of the mining companies while on the other hand, the Legal Department of the Central Bank rejected the petition.

Finally, the Attorney General, the chief counsel of all legal departments of the Federal Government, issued an opinion on September 16, 2002, rejecting the mining companies’ request. This opinion was based on the grounds that petitioners only enjoyed a “potential right”, meaning that their right to freely dispose of the mining exports proceeds was subject to the fact that the regulations which granted such free-disposition right continued in force at the moment the export was made.

2. Decree No 417/03

On February 27, 2003, Decree No 417/03 was enacted (published on February 28 in the Official Gazette), which clarifies the situation of those mining companies which have obtained the exchange stability while the regime of free disposition of export proceeds established by Decree No 530/91 was in force.

Decree No 417/03 does away with the opinion of the Attorney General referred above and specifically provides that mining companies that were registered under the stability regime of the MIL while Decree No 530/91 was in force will not be required to transfer the proceeds of their mining exports to the country.

Decree No 417/03 reinforces legal security in the mining sector. This Decree can be expected to cause mining companies that had stopped their investments as a result of the former legal uncertainty to reactivate their projects in the near future.