Argentina’s “Solidarity Contribution” is Regulated

On January 28, the Argentine Executive issued Decree No. 42/2021 which regulates the so-called “Solidarity Contribution” (the “Contribution”) provided by Law No. 27,605.

 

The regulation which, came into force last January 29, sets forth the following provisions:

• Section 1 establishes how the capital stocks or shares in companies governed by the Argentine Companies Law are to be calculated, which is in one of two ways: (i) taking into account the remainder between the assets and liabilities of the company as of December 18, 2020, based on the information provided in a special statement prepared to that date, or (ii) taking into account the company’s net worth for the last financial year closed before December 18, 2020. The latter does not apply if the incorporation or the valued participation results in a null contribution, in which case,  (i) applies by default. Section 1 adds that that if any partner or shareholder changed his or her shareholding between the closing date of the last financial year and December 18, 2020, he or she may not exercise option (ii). Also, if a person holds shares in different companies, he or she must use the same method to value all of his or her holdings. Finally, the regulation states that companies may be required to provide valuation-related information.

 

• For contributions made to trusts, foundations of private interest and other similar structures, participation in companies or other entities of any kind without tax personality and direct or indirect participation in companies or other entities of any kind (in the case of the latter, up to and including the third investment grade), governed parties must declare the assets contributed to such structures as their own and, when determining their contribution, they must include the percentage of participation they hold in each.

 

• All natural persons with Argentine nationality who reside or are located in “non-cooperative jurisdictions” or “jurisdictions of low or null taxation” as well as natural persons and undivided successions residing outside Argentina must appoint a sole proxy responsible for fulfilling the obligations to calculate and pay the Contribution.

 

• All goods considered Household Goods for the purposes of Personal Assets Tax are excluded from the Contribution calculation.

 

• The period for repatriating goods located abroad, pursuant to Article 6 of Law No. 27,605 is 60 administrative days from the date of entry into force of the law (December 18, 2020).

 

• For the repatriation of goods located outside Argentina, natural persons residing in Argentina and those with Argentine nationality residing or located in “non-cooperative jurisdictions” or “jurisdictions of low or null taxation” that have repatriated at least 30% of the total value of their financial assets located outside Argentina, the highest tax rates provided for in Section 5 of Law No. 27,605 will not apply. Instead the tax rates in Section 4 of that law apply. In addition, the exception stands if: (i) the repatriated funds remain deposited in an account under the holder’s name, within the entities covered by Law No. 21,526, through to December 31, 2021; or (ii) once the repatriation and deposit mentioned above have been completed, those funds are partially or totally earmarked for the following: (1) sale on the Free Foreign Exchange Market, through the financial institution that received the transfer from abroad; (2) acquisition of negotiable obligations issued in Argentine currency, pursuant to Section 36 of Negotiable Obligations Law No. 23,576; (3) acquisition of instruments issued in Argentine currency aimed at promoting productive investments, established by the Argentine Executive; or (4) contributing to companies governed by the Argentine General Companies Law in which the contributor has already participated at the date of entry into force of Law No. 27,605, if the main activity of those companies is not financial. With respect to (4), companies receiving such income must not distribute dividends or profits from the date of entry into force of Law No. 27,605 through to December 31, 2021. Finally, having made the deposit in an account in his or her name, if a governed party partially uses the amounts for the purposes of subparagraph (ii), the remnant must remain in that account through to December 31, 2021.

  

• For financial assets located outside Argentina, shares in entities, companies or companies incorporated, domiciled, established or located outside Argentina that, directly or indirectly, mainly carry out operational activities (meaning where less than 50% of their income is passive income), should not be considered as financial assets. Nevertheless, that share will be presumed to constitute a financial asset when it does not exceed 10% of the entity’s capital, company or undertaking incorporated, domiciled, established or located outside Argentina. On the other hand, credits and/or foreign rights linked to foreign trade operations carried out in the framework of operational activities are not considered to be included. In addition, the regulation excludes from the definition credits and guarantees, rights and/or derivative financial instruments, earmarked for hedging operations that have a close link with economic-productive activity and/or are intended to preserve the working capital of the company in which the governed parties have a share.

 

• The Contribution of undivided successions initiated as of January 1, 2020 will be governed by the place of residence of the deceased as of December 31, 2019.

 

• The Argentine Tax Authority will issue regulations to detect evasive operations or those intended to otherwise circumvent paying the Contribution.

 

• The decree governing Personal Assets Law No. 127/1996 applies supplementarily for the purposes of No. Law 27,605 and its regulatory orders.

 

Finally, it should be noted that, to date, the Argentine Tax Authority has not regulated certain operational issues pertaining to compliance with the Contribution regime.