Budget 2019, Inflation Adjustment of Income Tax and Approval of Amendments to the Argentine Fiscal Consensus

On November 15, 2018, three laws that have a great impact on tax matters were passed: (i) the Budget Law for the 2019 period (see MarvalNews #187 edition) containing several tax regulations; (ii) the law that modifies Income Tax Law on the sensitive matter of the application of Inflation Adjustment and (iii) the law that approves the modifications to the Argentine Fiscal Consensus (see MarvalNews #188 edition).

 

1. Tax regulations included in the Budget Law

1.1. Tax Procedure

1.1.1 Use of information sent to foreign tax authorities

Section 73 of the Budget Law derogates subsection 3 of paragraph d) of the sixth paragraph of section 101 of Law No. 11,683 of Tax Procedure.

This rule provided that the Tax Secrecy did not apply in case of information sent abroad within the framework of international cooperation agreements entered into between the Argentine Tax Authority (the “AFIP” after its acronym in Spanish) and foreign tax authorities, to the extent that they commit to comply with certain guidelines. These include using the information provided only for the purposes indicated in the previous sections, being able to reveal this information in the public hearings of the courts or in judicial decisions.

1.1.2 Exceptions to the Tax Secrecy

Section 74 of the Budget Law included paragraph g) to section 101 of Law No. 11,683 of Tax Procedure. According to this rule, Tax Secrecy does not apply to the Argentine Social Security Administration (the “ANSES” after its acronym in Spanish) provided that the information is directly linked to the prevention and control of fraud in the granting of benefits or subsidies granted or controlled by ANSES, and to define the access to a benefit or subsidy by a beneficiary.

1.1.3 Tax Value Unit

Section 88 of the Budget Law extends until September 15, 2019 the term provided in section 303 of Law No. 27,430 for the Argentine Executive to submit a bill to fix the Tax Value Unit.

The Tax Value Unit is a unit of measure provided in Title XI of Law No. 27,430 which -once its value is fixed- is used to determine the fixed amounts, minimum taxes, scales, penalties and any other monetary parameter contemplated in tax laws and other obligations whose application, perception and control is under theAFIP’s administration, including the respective procedural laws and the monetary parameters of the Criminal Tax Law.

1.2. Personal Assets Tax

Section 75 of the Budget Law approves the modification of the last paragraph of subsection b) of Section 22 of Title VI of Law No. 23,966 (Personal Assets Tax). This rule refers to the minimum valuation of motor vehicles. According to the modification, it will be used the table of reference values prepared by the Public Registry of Motor Vehicles instead of the list prepared up to now by AFIP as of December 31 of each year.

1.3. Value Added Tax

Section 87 of the Budget Law set the amount of ARS 15,000,000,000 (approximately USD 385,000,000) as the maximum limit for the refund of VAT according to the first section added after Section 24 of the Value Added Tax Law. This regime applies to subjects that develop activities that qualify as public services whose rate is reduced by the granting of sums in the form of subsidies, rate compensation and/or funds for economic assistance, made by the State directly or through trusts or funds set up for that purpose.

Section 90 of the Budget Law extends the exemption provided in Section 7 subsection a) of the Value Added Tax Law. According to the modification, the subscriptions of digital periodic editions of online information are exempted, throughout the chain of marketing and distribution, in all cases and no matter what support or medium is used for their diffusion.

The limitation of the exemption is eliminated for those subjects whose activity is editorial production. In its current wording, the first paragraph of Section 7 paragraph a) of the Value Added Tax Law limits the application of the exemption to the case of services of classification, distribution and/or return of newspapers and periodical publications that are provided to subjects whose activity is the editorial production.

Section 91 of the Budget Law incorporates a third section following section 24 of the Value Added Tax Law. Subjects that provide the following services: television broadcasting services (openly or by subscription), publishing companies of newspapers, magazines, periodicals or digital journalistic editions of online information and the distributors of those publishing companies, may all include as  VAT tax credit employer contributions on the payroll of the personnel affected to said activities. These must have been accrued in the fiscal period and actually paid at the moment of the presentation of a VAT sworn statement, to the amount that exceeds the corresponding compute according to the provisions of the second paragraph of the subsection d) of Section 173 of Law No. 27,430. This is 0 percent for the City of Buenos Aires and most of Greater Buenos Aires. These amounts must be considered prior to the calculation of the remaining tax credits, and will not generate positive balances in accordance with Section 24 of the Value Added Tax Law, nor may they be deducted in the determination of the Income Tax.

This modification will be applicable as of January 1, 2019.

Section 92 of the Budget Law replaces the section added after Section 28 of the Value Added Tax Law. Those whose activity consists of editorial production, rental of advertising space in newspapers, magazines and periodicals, will be subject to a rate of: (i) 10.5% when the billing amount in the previous 12 calendar months, excluding VAT, was equal to or less than ARS 252,000,000 (approximately USD 6,500,000); or (ii) 21%, if the billing amount exceeds that value.

For those whose activity consists of digital journalistic editions of online information, the applicable rates will be the following: (i) 5% when the billing amount in the previous 12 calendar months, excluding VAT, was equal to or less than ARS 63,000,000 (approximately USD 1,620,000); (ii) 10.5% when the billing amount in the previous 12 calendar months, excluding VAT, was higher than ARS 63,000,000 but less than ARS 252,000,000 (approximately USD 6,500,000); and (iii) 21% if the billing amount exceeds ARS 252,000,000.

Regarding classification, distribution and/or return services of newspapers, magazines and periodicals that are provided to subjects whose activity is the editorial production, will be taxed at a rate of 10.5% (50% of the rate provided in the first paragraph of Section 28 of the Value Added Tax Law).

Section 93 of the Budget Law modifies Section 50 of the Value Added Tax Law referred to the subjects who print books, pamphlets and similar, even in fascicles or loose sheets, that constitute a complete work or part of a work, included in the exemption of Section 7 subsection a) of the Value Added Tax Law.

The technical VAT balance -generated as of January 1, 2019- that cannot be computed to cancel VAT, could be credited against other taxes controlled by AFIP, or be returned or transferred to responsible third parties in the terms of the second paragraph of Section 29 of Law No. 11,683 of Tax Procedure, all subject to the AFIP’s regulation on this matter.

Section 50 of the Budget Law adds that accreditation could not be made against obligations derived from substitute or joint liability for third-party debts, or from the situation of the beneficiary as withholding/collection agent. Nor would it be applicable against taxes destined exclusively to the financing of funds with specific allocation, or to the social security resources.

The limit of the accreditation, refund or transfer will be that which results from the application of the general tax rate (21%) on the amount of sales or locations made in each fiscal period. If there is a surplus, it could be transfer to subsequent fiscal periods.

Section 95 of the Budget Law adds two points to the subsection a) of the fourth paragraph of Section 28 of the Value Added Tax Law. Based on this modification, it would be taxed at a rate of 10.5% (50% of the rate provided in the first paragraph of Section 28 of the Value Added Tax Law) the sales, locations and final imports of: (i) solid waste resulting from the industrial extraction of soybean oil (according to the definition of Rule XIX of Resolution 1075/1994 of the former Ministry of Agriculture, Livestock and Fishing), as well as any other waste or solid product resulting from the industrial processing of soybeans, in both cases, whatever their commercial form (expellers, pellets, cakes, flours, granules, etc.); and (ii) denatured soybeans, deactivated, roasted, broken, any product originated from sifting and cleaning obtained from soybeans, soybean husks, any type of mixture of these products, whatever their commercial form.

Section 96 of the Budget Law exempts from Value Added Tax the social housing construction. Section 97 of the Budget Law contemplates a mechanism for the utilization and/or return of the generated tax credits -as of January 1, 2019- in charge of the subjects that carry out exempt activities in accordance with the provisions of Section 96. These benefits will be applicable in the provinces that, through a provincial law, provide exemptions to Stamp Tax and Turnover Tax, and invite their municipalities to provide tax incentives. Based on Section 96 of the Budget Law, Sections 96 and 97 will be applicable for projects that start as of January 1, 2019, or those whose progress has not exceeded 25%, and provided they are completed by December 31, 2023.

1.4. Refund Regimes

1.4.1 Individuals forced to accept alternative means of payment other than cash

Section 76 of the Budget Law approves the amendment to the first paragraph of Section 10 of Law No. 27,253. It expands the universe of individuals forced to accept other means of payment, other than cash (for example, debit cards, non-bank prepaid cards, etc.). The reference to “providers of mass consumption services to final consumers” would be replaced by “service providers.” It maintains the possibility of calculating as VAT tax credit the cost incurred by the new individuals that are forced to adopt alternative means of payment, up to the amount authorized by the enforcement authority.

1.4.2 Refunds to final consumers

Section 77 of the Budget Law authorizes the AFIP to establish a refund regime to final consumers (individuals) with the purpose of encouraging behaviors related to the formalization of the economy and tax compliance. The Ministry of Finance will establish the budget allocated for the corresponding refunds.

1.5. Excise Tax

Sections 83 and 84 of the Budget Law eliminate “champagne” from the scope of taxation. This modification will apply to the taxable events verified as of January 1, 2019.

Section 85 of the Budget Law modify of the last paragraph of Section 39 of the Excise Tax Law (text replaced by Law No. 24,674). The values established in the second and third paragraph of the aforementioned Section 39 would be adjusted on a quarterly basis by the variation of the Consumer Price Index published by the INDEC.

The Budget Law maintains the adjustment variable, increasing its periodicity. In April 2019 the values to be examined in January 2019 would be adjusted again pursuant to current regulations.

1.6 Income Tax

The Congress did not approve the modifications to the Income Tax Law that were included in the Bill and commented on in Marval News #187 edition.

Regarding the cooperatives companies and mutual associations that develop financial and insurance activities, the Budget Law includes –in Chapter XIV- a contribution of 4% or 6% on its capital. The 6% rate would apply if the tax base exceeds ARS 100,000,000 (approximately USD 2,500,000). This contribution would be valid for 4 fiscal years, i.e. until 2022 inclusive.

Cooperatives companies that had paid the special contribution provided in Law No. 23,427 could use these amounts as a payment on account of this tax. Additionally, the Budget Law provides that it will not be applicable the exemption provided for mutual associations in Section 29 of Law No. 20,321.

1.7 Export Duties

On Sections 78, 79 and 80 of the Budget Law, there are several modifications made to the Customs Code, to levy export duties on the services rendered whose use or effective exploitation takes place abroad.

In this sense, section 78 incorporates as subsection c) and as last paragraph of subsection 2 of Section 10 of the Customs Code, the services rendered whose use or effective exploitation takes place abroad.

Then, article 79 replaces the second paragraph of subsection 2 of Section 91 of the Customs Code as follows: "in the cases contemplated in subsection 2 of Section 10, exporters must be considered as the persons who provides and/or transfers the services and/or duties there involved."

Likewise, it is incorporated as a second paragraph of Section 735 of the Customs Code that, for the purpose of determining the ad valorem export duty applicable to the services provided in subsection 2 of Section 10, it will be considered as taxable value the amount arising from the invoice or equivalent document.

Section 81 of the Budget Law authorizes the Executive Branch - within the framework of the powers agreed upon through Section 755 of the Customs Code- to fix export duties whose rate may not exceed 30% in any case of the taxable value or the official FOB price. The Bill set a cap of 33%.

Likewise, it was added that this maximum limit will be 12% for those merchandise that were not subject to export duties as of September 2, 2018 or that were taxed with a 0% rate at that date.

In this sense, as commented on in MarvalNews #188 edition, the constitutionality of this regulation is debatable due to the fact that the Argentine Constitution prohibits the delegation of legislative affairs to the Executive Branch, exceptionally enabling it under conditions that do not appear to be met in this case. For this purpose, it should be considered that the timing and opportunity to impose export duties, whose exported goods will be subject to the duty, the export duty rate, and the extension of the term in which export duties would be levied, are all issues that largely exceed the definition of "certain administrative matters or public emergency", as well as the lack of legislative policy that determines the conduct to be followed by the Executive Branch ("delegation grounds").

2. Modifications introduced to the Income Tax Law. Inflation Adjustment Proceeding.

Together with the Budget Law, on November 15, 2018, the Congress passed a series of amendments to the Income Tax Law (for the fiscal year beginning on January 1, 2018), as indicated below:

- The adjustment variable contained in Section 89 (index of update) and Title VI (Inflation Adjustment) was substituted by the general Consumer Price Index.

Also, the reference included in note 1 of the form of paragraph a) of Section 283 of Law No. 27,430 (tax and accounting revaluation) to the wholesale price index (IPIM) for the general Consumer Price Index. This modification is applicable to the years closed after December 31, 2017.

- The last paragraph of Section 95 was modified, provided that the Inflation Adjustment Proceeding will be applicable -regarding the first three years as of January 1, 2018- when the variation of the Consumer Price Index exceeds 55% for the first exercise, 30% for the second year and 15% for the third year.

- A second Section was added after Section 118, which stipulates that the inflation adjustment that must be calculated in the first three fiscal years beginning on January 1, 2018 mustbe charged 1/3 in that fiscal period and the remaining 2/3 in equal parts in the remaining fiscal periods.

Finally, a second paragraph is added to Section 10 of the Convertibility Law (No. 23,928) providing that the repeal of regulations authorizing indexation does not include the financial statements, for which maintains the provisions of the final part of Section 62 of the General Corporation Law. This standard provides that the financial statements corresponding to full or interim periods within the same fiscal year must be prepared in unchanging currency.

3. Approval of modifications to the Argentine Fiscal Consensus

On November 15, 2018, the Congress also passed the modifications to the Argentine Fiscal Consensus commented on in MarvalNews #188 edition.