Negotiable obligations, debts refinancing processes and their tax treatment

The Argentine Securities Commission (the “CNV”) issued an opinion (the “Opinion”) in response to a private consultation referring to the tax treatment applicable to negotiable obligations issued in the context of debts refinancing processes.

The consultation requested an opinion as to whether the new securities “transferred directly or indirectly as payment or as refinancing of preexisting debts”, have “the same exemptions and tax benefits stated in Law No 23,576 as those securities that are being exchanged”.

The Opinion points out that Section 36, Subsection 1 of the Negotiable Obligations Law No 23,576 states, as one of the requirements to have the beneficial tax treatment of such law, that “the negotiable obligations must be placed through public offer, having the respective authorization granted by the Securities Commission for that purpose”. Thus, the Opinion indicates that two different and independent conditions are required:

(i) the existence of an authorization granted by the CNV, and

(ii) the placement of the negotiable obligations through public offer.

Even though the CNV points out the abstract character of the consultation and the possibility of a different interpretation on a concrete case, the Opinion indicates that the tax benefits would apply to negotiable obligations issued in exchange of “fiduciary debt securities” that already had such benefits. With partial citations of previous opinions of the CNV, the Opinion emphasizes that:

(a) “... the exchange involves a subrogation according to which ‘the new negotiable bonds’ will take the place of the fiduciary securities ...”;

(b) “... because it is deemed to be an exchange of fiduciary debt securities for ‘new negotiable obligations’, from an effective and real placement through public offer of the first, there is no problem in concluding that the latter have that circumstance regarding the tax benefits ...”;

(c) “... if the debt actually continues to exist due to the lack of payment, its refinancing, in principle, is part of a wider process when ‘new’ securities are issued in subrogation of the ‘old ones’. The first, although new, remain linked to the initial credit still owed ...”.

The Opinion also indicates that the new issuance of negotiable obligations is accessory to the first one and, therefore, will depend on it. It states that if in a normal exchange the existence of the first issuance was ignored, the second issuance would lack autonomy, and would not have its own life because it would depend on the precedent that justifies it.

Even though the opinion is not explicit, the conclusion seems to be based on the non-existence of a new cause for the negotiable obligations issued in replacement of previous securities. In other words, it seems that as there is no “novation” of the original obligations, the tax proceeding applied to the new obligations may not differ from the one applied to the original securities. It is not clear if the placement of the new obligations between the original securities holders would qualify as placement through public offer, or if this would be necessary for the new securities in having the same tax treatment as the exchanged securities.

The opinion’s conclusions could be important in refinancing debts proceedings in which there is no novation of the obligations, or in “extra-judicial reorganization proceedings” assuming that they do not produce “novation”.

However, the opinion concludes that it is the Fiscal Authority who should interpret the applicable tax treatment, as indicated in Decision No 16/2002 of the Dirección de Asesoria Técnica de la Administración Federal de Ingresos Públicos, issued on January 25, 2002.