The Tax Authority’s Position Regarding Disposal of Shares

For individuals resident in Argentina who obtain income derived from the disposal of shares of entities incorporated abroad (results attributable to foreign source), the Federal Tax Authority (AFIP) gave its opinion on issues related to the taxable base, the applicable tax rate and the scope of the exemption applicable to shares listed on stock exchanges or markets.

In addition, the AFIP gave its view on the applicability of the withholding regime on the operations of disposal of shares not listed on stock exchanges and performed by individuals resident in Argentina.

1. Taxable base

A controversial issue was whether the disposal of shares result should be determined and recorded in local currency (Argentine pesos) or in foreign currency. The AFIP upheld that: “The determination of the result must be made in Argentine pesos comparing the price of acquisition at the exchange rate in force at the moment of the purchase with the sale price at the exchange rate of the date of the sale”.

2. Tax rate

Previously, the AFIP had answered in the “ABC – Frequently Consultations and Answers about Legislation, Applications y Systems” section of its own website that subsection a) of article 167 of the Income Tax Law was applicable; i.e., tax was to be determined applying the scale provided for article 90 of the Income Tax Law (tax rate from 9% to 35%).

In the meeting with CPCECABA, the AFIP changed its criterion (based on a report by the Argentine Division of Taxes) and considered that a tax rate of 15% is applicable.

Currently, the answer to the consultation referred to in the first paragraph under identification number “ID 18489379” has been updated to April 14, 2016, in accordance with the AFIP’s latest upheld position.

3. Exemption of article 20 subsection w) of the Income Tax Law

The CPCECABA inquired about the scope of the exemption of the income tax for the disposal of shares listed on foreign stock exchanges. In this case the AFIP answered that it is a result taxed by income tax and added that “it is concluded that the scope of the exemption is limited to the results derived from the sale of shares, quotas and participations in equity, securities, bonds made through stock exchanges authorized by the CNV (Argentine Exchange Commission) obtained by individuals residents to the extent that these operations are not attributable to enterprises or one-person business exploitation covered by subsections b), c) and the last paragraph of article 49 of the Income Tax Law. This is because the legal provision tends to promote the local capital market” (the highlighted sections are ours).

This conclusion is based on an interpretation of the text of the Regulatory Decree of the Income Tax Law that is controversial. Some scholars consider that the text of the Regulatory Decree only clarifies one of the cases of the exemption but does not limit the text of the law. Other scholars uphold that the requirement included by the Regulatory Decree constitutes a regulatory excess and hence is unconstitutional.

4. Withholding Regime

Last but not least, another matter that generated uncertainty was whether the operations of disposal of shares were subject to income tax withholding at a rate of 1.5% over the price of the transference of shares, as established by AFIP General Resolution N° 1107/2001. The applicability of AFIP General Resolution No. 1107/2001 was controversial since the standards regulated in 2001; i.e., Law No. 25,414 and Decree No. 493/2001 were abrogated. The CPCECABA had sent a note to the AFIP on August 29, 2014 asking about the applicability of the GR (AFIP) No. 1107/2001 but it had not been answered.

Finally, the AFIP replied in the “Advisory Space AFIP- CPCECABA” in the following way: “For this Tax Administration the rule is in force. However, the convenience and/or opportunity to issue a clarifying rule or a specific regime to such end is being analyzed.”

In other words, until a specific withholding regime for disposal of shares is issued, General Resolution (AFIP) No. 1107/2001 is in force; therefore, an income tax withholding of 1.5% over the price of the transference of shares is applicable.