New tax measures to promote investments. Cont.

On April 2004 the Argentine Government sent to Congress a bill containing a series of measures aiming to promote investments (please see “New tax measures to promote investments” in Marval News #27 of April 30, 2004). After almost four months, on August 18, 2004, the Congress turned it into law, even though for it to be applicable, it has to be published in the Official Gazette.

It is about a series of temporary tax measures to promote investment in new capital goods –except automobiles–, depreciable under the income tax law for the industrial activity and infrastructure work, except civil works, according to the regulations to be issued. The promotion measures consist, basically, in the accelerated reimbursement of Value Added Tax (“VAT”) related to the investments and in an accelerated depreciation regime under the income tax.

The main aspects of the regime are:

(i) The regime is available for individuals domiciled in Argentina and legal entities constituted under the laws of Argentina or qualified to carry out activities in Argentina. The beneficiaries must prove to the tax authority (“AFIP”), the existence of a project of investment on industrial activities or the execution of infrastructure work to be performed within a term of three years as of the month following the enforcement of the law. Prospective beneficiaries should register in a special record book and prove the creation of new work positions.

(ii) The accelerated reimbursement of the VAT and the accelerated depreciation of assets in the income tax regimes are not applicable together, except for the cases of investment projects where the production is solely for exportation purposes. None of the regimes is applicable to those who have financed their tax credits through the regime set forth by Law No 24,402 of financing of the VAT at a “zero rate” related with certain investments.

(iii) The accelerated reimbursement of the VAT regime foresees the possibility of crediting the tax against other Argentine taxes or, if not possible, to request its return after at least three fiscal periods as of the moment the respective investments were made. The reimbursement of the tax will be pursuant to the terms and conditions to be set forth by the applicable regulations. The fiscal credit would only be compensated against the beneficiary’s own tax liability. The capital goods should remain in the beneficiary’s worth at the time the credit or return is requested. The fiscal credit arising from the fees or the purchase option under the terms of a leasing agreement could only be computed after at least three fiscal periods as of the one in which the purchase option was exercised.

(iv) The accelerated depreciation regime foresees an optional scale depending on the moment when the investment is made, allowing the depreciation of the assets according to the following parameters: (a) for depreciable goods acquired, elaborated or imported within the first twelve months, the second twelve months or the third twelve months immediately after the enforcement of the law, at least in three, four and five annual, equal and consecutive installments respectively; and (b) for infrastructure work initiated within the first twelve months, the second twelve months or the third twelve months immediately after the enforcement of the law, in the quantity of annual, equal and consecutive installments resulting from computing the useful life of said goods reduced to 50%, 60% and 70% respectively.

(v) The regime is not applicable to investments and works initiated before the enforcement of the law and to investment obligations assumed by virtue of agreements executed with the Argentine Government, the provinces, the municipalities and the City of Buenos Aires.

(vi) The AFIP is the authority in charge of controlling the beneficiary’s compliance with the terms of the registered investment projects. Sanctions for lack of compliance to the regime include their voidance, the restitution of the credited or returned fiscal credits, the application of compensatory interest and the imposition of a fine equal to 100% of the credited or returned tax (in the case of the VAT) or the unpaid tax (in the case of the income tax).

(vii) The regime is not available for those subject to bankruptcy proceedings or subject to criminal law proceedings related with tax evasion matters.

(viii) It is a requirement for the granting of the benefits to waive or give up the right to start any sort of legal action (or to waive any legal action already initiated) tending to the application of any actualization method for tax purposes (i.e. adjustment for inflation -ajuste por inflación-).

(ix) Sets forth an annual cap of AR$ 1,000,000,000 to be applied to the regime, allocating AR$ 700,000,000 to the accelerated reimbursement of the VAT and AR$ 300,000,000 to the accelerated depreciation under the income tax. Furthermore, it sets forth an extra annual cap of AR$ 200,000,000 exclusively for investment projects to be carried out by so called small and medium enterprises (“PYMES”), allocating AR$ 140,000,000 to the accelerated reimbursement of the VAT and AR$ 60,000,000 to the accelerated depreciation under the income tax.

(x) Encourages the provinces to adhere to the promotional spirit of the law by creating partial or total exemptions for this kind of projects in the gross revenue tax and the stamp tax.

(xi) The regime set forth in the law will be enforceable as of the date of the publication of the law in the Official Gazette, and this has not occurred yet.