Main Aspects of the New Tax Moratorium

On August 13, 2020, “Law No. 27,562 to Extend the regularization regime for tax obligations to alleviate the effects of the COVID-19 pandemic” was passed in the Argentine Congress and promulgated on August 26, 2020 by Decree No. 699/2020 EP, to increase the application and scope of the Regularization Regime of Tax, Customs and Social Security Obligations ("the Regime"),  currently in force only for Micro, Small or Medium-sized Companies (“MiPyMEs,” after their Spanish acronym) and non-profit civil entities (https://www.marval.com/publicacion/regimen-de-regularizacion-de-obligaciones-tributarios-de-la-seguridad-social-y-aduaneras-13492) through Chapter 1, Title IV of the Law No. 27,541. If the Argentine Congress approves the bill, the Regime will apply to all the taxpayers (the “Extension Law”).

The main aspects of the Extension Law are the following:

 

Requirements: The Extension Law allows taxpayers that enroll in the Regime to regularize taxes and social security obligations applied, collected and audited by the Argentine Tax Authority (the “AFIP”, after its Spanish acronym), expired as of July 31, 2020, or infringements related to such obligations. Refinancing of payment plans in force and emerging debts of expired plans are also included. The obligations corresponding to the Fund for Cooperative Education and Promotion established by Law No. 23.427 and its amendments, as well as the additional charges for export or import taxes, the settlements of the aforementioned taxes included in the procedure for the infractions under the provisions of Law No. 22.415 (Customs Code) and its amendments and the amounts that as export incentives should be returned to the AFIP. In addition, the Expansion Law eliminated the exclusion that existed to regularize the Gambling Tax and Fuel Tax. Likewise, it set forth that obligations or infractions related to promotional regimes that grant tax benefits are included in the Regime, like the regularization of tax debts which could result in the decline of its fiscal benefits.

 

Taxpayers: The Extension Law sets forth the expansion of the Regime in favor of all taxpayers, and all those responsible for taxes and social security obligations applied, collected and audited by the AFIP, to enroll in the Regime.

 

Exclusions: The Expansion Law excludes all debts related with labor insurance system, and social system contributions destined to social security services.

 

Taxpayers excluded: The following taxpayers are excluded from the Regime: human or legal entities that do not have the condition of: i) MiPyMES; ii) non-profit entities and community organizations registered as foundations, civil associations, simple associations and entities with municipal recognition and that, with their own domicile and that of their directors established in national territory, do not pursue profit purposes directly or indirectly and develop programs for the promotion and protection of rights or direct social aid activities; and iii) natural persons and undivided inheritances that are considered small taxpayers in the terms determined by the AFIP, possess financial assets located abroad, unless the repatriation of at least thirty percent (30%) of the proceeds of their realization, directly or indirectly, is verified, within sixty (60) days from accessing the Regime.

 

In the case of legal entities, the condition of repatriation is applicable to their partners and shareholders, direct and indirect, who own a percentage of no less than thirty percent (30%) of their share capital. Transitory unions, collaboration groups, cooperation consortia, associations without legal existence as legal entities, non-corporate groups or any other individual or collective entity, including trusts, are also included.

 

Definition of financial assets located abroad: the Expansion Law establishes that a financial asset located abroad is understood as the possession of foreign currency deposited in banking, financial and/or similar entities abroad; corporate and/or equivalent holdings (private securities, shares, quotas and other holdings) in all types of entities or companies, with or without legal status, located abroad, including sole proprietorships, rights inherent to the beneficiary character, trustee of trusts (trusts or similar) of any type constituted abroad, or foundations of private interest abroad, or in any other type of heritage of similar affectation located abroad; in addition, all kinds of financial instruments or securities, such as bonds, negotiable obligations, representative securities and certificates of deposit of shares, shares of common investment funds and other similar, whatever their denomination is; finally, credits and all types of foreign law, susceptible of economic value and any other kind that may be provided for in the regulation.

 

Deadline: Submission to the Extension Law must be made up until October 31, 2020.

 

Liabilities under discussion: The liabilities that are in the course of administrative discussion or subject to administrative or judicial proceedings can also be regularized. The submission to the Extension Law implies unconditional withdrawal of the defendant for all the regularized obligations and, when appropriate, desists and waives any action and right, assuming the payment of the legal fees and other expenses. The acceptance of the tax criteria will imply the withdrawal of all the rights, action, or claim, including that of reimbursement with regards to obligations regularized.

 

Effects of the total cancellation of the debt according to criminal actions. Effects on third parties: The total cancellation of the debt under the conditions provided in the Extension Law is proposed to be extended to the benefits for the extinction of the tax or customs criminal action, for those liabilities which are identical to the ones that can be regulated, and were canceled before the law amending application.

 

Applicable exemptions or pardon: The taxpayers that adhere to the Extension Law while complying with the expected payments, will have the following exemptions and/or pardon:

 

1) fines and other penalties provided in law No. 11.683 (1998) and its amendments, in Law No. 17,250 and its amendments, in Law No. 22,161 and its amendments and in Law No. 22,415 and its amendments, that do not have a final ruling at the date of adhesion to the Regimen;

 

2) one hundred percent (100%) of the compensatory and / or punitive interest provided in articles 37 and 52 of law No. 11,683 (1998) and its amendments, of the principal owed and adhered to the Regime corresponding to the contribution provided in article 10, subsection c), of law No. 24.241 and its amendments, of self-employed workers included in article 2, subsection b), of the aforementioned legal rule;

 

3) of the compensatory and / or punitive interests provided in articles 37, 52 and 168 of Law No. 11,683 (1998) and its amendments, the compensatory and / or punitive interests on fines and customs taxes (including amounts that in the concept of export incentives should be returned to the AFIP) provided in articles 794, 797, 845 and 924 of Law No. 22,415 in the amount that for the total interest exceeds the percentage that for each case is established as follows:

 

• Fiscal period 2018, 2019, and obligations due as of July 31, 2020: ten percent (10%) of the principal owed.
• Fiscal periods 2016 and 2017: twenty-five percent (25%) of the principal owed.
• Fiscal periods 2014 and 2015: fifty percent (50%) of the principal owed.
• Fiscal periods 2013 and prior years: seventy-five percent (75%) of the principal owed.

 

Conditions for the benefits to applying: The aforementioned benefits apply if the taxpayers comply, concerning the principal, with fines with the final ruling and unpardoned interest, some of the following conditions: 1) set off of the aforementioned debt, whatever its origin is, with free availability balances, reimbursements, refunds or similar to which they are entitled by the AFIP; 2) cancellation by cash payment until the adhesion date. A reduction of fifteen percent (15%) of the consolidated debt would be applicable in these cases; 3) total cancellation through any payment facility plan of the AFIP.

 

Payment plan maximum term:

1) For personal contributions to the Unified System of Social Security (“Sistema Único de la Seguridad Social” in Spanish) and tax withholdings or collections, and social security obligations:

- Sixty (60) installments for MiPyMES, non-profit entities and community-based organizations registered such as foundations, civil associations, simple associations and entities with municipal recognition, do not pursue profit-making purposes directly or indirectly, and develop programs for the promotion and protection of rights or activities of direct social assistance, and human persons and undivided estates that are considered small taxpayers in the terms established by the AFIP.

- Forty-Eight (48) installments for the remaining taxpayers.

 

2) For the remaining obligations:

- One hundred and twenty (120) installments for MiPyMES, non-profit entities and community-based organizations registered such as foundations, civil associations, simple associations and entities with municipal recognition, do not pursue profit-making purposes directly or indirectly, and develop programs for the promotion and protection of rights or activities of direct social assistance, and human persons and undivided estates that are considered small taxpayers in the terms established by the AFIP.

- Ninety-six (96) installments for the remaining taxpayers.

 

3) For all the obligations included in the Regime:

- One hundred and twenty (120) instalments for non-profit entities, non-state public entities, and entities included in subsections b), e), f), g) and l) of the Argentine Income Tax Law, and its amendments (2019).

 

Payment Plan Expiration reasons: The assumptions of expiration for payment facility plans enrolled that are included in the Extension Law, are the following ones:

1. Non-payment of up to six (6) installments in case of MiPyMES, non-profit entities and community-based organizations registered such as foundations, civil associations, simple associations and entities with municipal recognition, do not pursue profit-making purposes directly or indirectly, and develop programs for the promotion and protection of rights or activities of direct social assistance, and human persons and undivided estates that are considered small taxpayers in the terms established by the AFIP, and bankrupt debtors;

2. Non-payment of up to three (3) installments for all the remaining taxpayers;

3. The invalidity of the balance of free availability used to offset the debt;

4. Lack of judicial approval of the settlement within the terms determined by the regulations to be issued.

5. The lack of obtaining the MiPyME Certificatez

6. About contributors that are included in the Regimen (in exception of MiPyMES, non-profit entities and community-based organizations registered such as foundations, civil associations, simple associations and entities with municipal recognition, do not pursue profit-making purposes directly or indirectly, and develop programs for the promotion and protection of rights or activities of direct social assistance, and human persons and undivided estates that are considered small taxpayers in the terms established by the AFIP), in the cases that:

6.a) the distribution of dividends and profits to their shareholders and partners, under the terms of the articles 49 and 50 of the Argentine Income Tax Law (2019), until the twenty-four (24) following months, counting since the entry into force of the Extension Law;

6.b) when from the entry into force of the Extension Law, and for the following twenty-four (24) months access to the Argentine Stock Exchange, in order to pay net benefits to companies, firms or to another related foreign beneficiary, with the motive of benefits derived from technical assistance, engineering, consultancy, or the ones that becomes for transfer of rights or exploitation of invention patents licenses (and all the remaining objects not included in the mentions above), or by fees or retributions that were paid by credits, loans or any source funds placement; and

6.c) When the securities sales were settled by foreign currency or transfers to foreign depository institutions, until the twenty-four (24) following months, counting since the entry into force of the Extension Law, and subject to the provisions to be determined by the Argentine Securities and Exchange Commission.

7) This applies for twenty four months to the foreign transfer or purchase of financial assets by human or legal persons as of the date of entry into force of Argentina’s Expansion Law (Ley de Ampliación). In addition, these operations may not be carried out by the partners and shareholders of legal entities that hold at least thirty percent (30%) of the capital stock or by anyone who is acting in a capacity of temporary union, collaboration groups, cooperative consortia, associations without legal existence as legal persons, non-corporate groupings or any other individual or collective entity.

In the event that the taxpayer cancels its obligations under this Regime, it will be exempt from complying with points 6) and 7).

The Extension Law, on the one hand, invites the provinces, their respective municipalities and the City of Buenos Aires to establish similar programs for regulating debts, including, among others, taxes on gross income and municipal fees.

On the other hand, the Extension Law sets forth the suspension for a period of one year of the course of the statute of limitation on any action to determine or require the payment of the taxes whose application, perception and supervision is made by the AFIP, and to apply fines in relation to them, as well as the expiration of the instance in the trials of tax executions or judicial remedies.