Amendments to the Personal Assets Tax

On May 15, 2002, a law (the “New Law”) amending the Personal Assets Tax (the “Tax”) was published in the Argentine Official Gazette. The New Law will apply to the determination of the Tax corresponding to the fiscal year ending on December 31, 2002 and thereafter.

1. General overview of the Tax

The Personal Assets Tax Law provides that all individuals domiciled and undivided states located in Argentina are subject to a tax upon their worldwide assets. Individuals not domiciled and undivided states not located in Argentina are only liable for the Tax upon their assets located in Argentina. Shares, negotiable obligations and other securities are only deemed to be located in Argentina when issued by an entity domiciled in Argentina.

In the case of individuals domiciled and undivided states located in Argentina, the Tax rate is 0.5%, applied upon the value of the assets owned by the taxpayer on 31 December of each relevant fiscal year, and 0.75% if the value of such assets exceeds $ 302,300. There is a non-taxable amount of $ 102,300 with respect to individuals domiciled and undivided states located in Argentina.

The Tax applicable to individuals not domiciled and undivided states not located in Argentina must be paid at a 0.75% rate. The Tax must be paid by the individual or legal entity domiciled in Argentina, vested with joint ownership, possession, use, enjoyment, disposition, deposit, custody or administration (the “substitute obligor”) of the assets subject to the Tax.

2. Applicability of the Tax to individuals and undivided states holding shares or other type of equity interest in Argentine companies

2.1 Local individuals and undivided states

Before the New Law was enacted, individuals domiciled and undivided states located in Argentina were obliged to include the value of their shares or other type of equity interest in Argentine companies in their tax returns, and to pay the corresponding Tax. The New Law abrogates said obligations and states that Argentine companies are liable for the payment of the Tax corresponding to their shares or equity interest. The Tax is levied at a 0.50 % rate, and the non-taxable minimum amount does not apply. Argentine companies are entitled, however, to seek recovery of the Tax from the shareholder or owner of the equity interest.

2.2 Foreign individuals and undivided states: new mechanism of collection

In principle, the Tax is only imposed upon individuals and undivided states. However, before the New Law was enacted, it was presumed that shares or other type of equity interest in an Argentine company directly owned by a foreign entity were owned by individuals domiciled or undivided states located in Argentina and were, therefore, subject to the Tax. The Argentine company was liable for the payment of such tax, and was entitled to seek recovery from the foreign entity. The applicable rate was 1.5 %. The presumption did not apply if one of the following conditions was satisfied:

(a) securities representing the foreign entity’s capital were considered to be registered shares according to the law in force in the jurisdiction of incorporation,

(b) pursuant to its by-laws or to its juridical nature, the foreign entity,

(i) did not, as its principal activity, invest outside the jurisdiction of its incorporation, or

(ii) was not prohibited from performing certain transactions expressly indicated in its by-laws or in the applicable regulatory framework in the jurisdiction of its incorporation.

The New Law abrogates the presumption described above, and provides for a new presumption that allows no proof to the contrary (i.e., an irrefutable presumption). Under the New Law, it is presumed that shares and equity interest owned by any kind of foreign entity, regardless of the satisfaction or not of conditions (a) and (b) described above, are owned by an individual domiciled or undivided state located abroad. The Argentine company is liable for the payment of such tax at a rate of 0.5%, and is entitled to seek recovery from the foreign entity. However, certain conventions for the avoidance of double taxation entered into between Argentina and other countries could prevent the applicability of the Tax.

Since individuals and undivided states domiciled or located abroad were already taxed for their shares or equity interest in Argentine companies, the presumption of the New Law provides for a mechanism to effectively collect the Tax, even in those cases in which there is no “substitute obligor” in Argentina.

3. Valuation of Argentine shares

Before the New Law was enacted, the valuation of listed and unlisted shares for purposes of the Tax was different. While listed shares were valued at their market value on 31 December of each relevant year, unlisted shares were valued at their proportional equity value at such date. The New Law states that both listed and unlisted shares of Argentine companies are valued at their proportional equity value.