New Regulation of Modern Biotechnology and Nanotechnology Development and Production Promotional Regime

Through Decree No. 644/2022, published in the Official Gazette on September 16, 2022, the Argentine Executive Branch enacted Law No. 27685, which extended the term of the regime until December 31, 2034. The law also expanded its scope to include the nanotechnology sector. For further details, see our article.

As a result of the amendments introduced to the Regime, theDecree No. 853/2022 establishes a new regulation to implement it.

Below you will find the main points of the new regulation.

Eligible actions. The actions to be considered are those that are directly related to:

1. The execution of scientific and technological research projects focused on the productive development of modern biotechnology and/or nanotechnology.
2. The execution of biotechnological and/or nanotechnological research and development projects focused on technology transfer.
3. The development of new technologies, products, services, processes and/or productive improvements within the modern biotechnology and/or nanotechnology sector.
4. The incorporation of modern biotechnology and/or nanotechnology in the entire production process.
5. The social, environmental, and productive impact analysis in the implementation and/or incorporation of new technologies, products, and processes in the biotechnology and/or nanotechnology sector.

Project Selection. The Enforcement Authority will establish the necessary actions to carry on the project selection process for granting the benefits under the Regime and will also set forth the procedure for the analysis and the project selection mechanism.

In addition, it may request a non-binding report before approving the project from the ministries and public entities specialized in the relevant field to issue an opinion on the feasibility of the projects.

Advisory Commission. Those members representing the provinces and the City of Buenos Aires must belong to federal councils, and those members representing the private sector must belong to associations, chambers, and/or foundations. The Enforcement Authority will regulate the operation of the Advisory Commission and will establish the procedures for the appointment of its members.

Project Approval. If a project is approved, it will be registered in the National Registry for the Promotion of Modern Biotechnology or in the National Registry for the Promotion of Nanotechnology, depending on the nature of the project. If a project involves both promoted activities, the beneficiary may choose where to register. The approved project will remain registered until the Enforcement Authority considers that it has been concluded.

The beneficiaries of registered projects may apply for new project selection processes to request the extension of an original project already approved regarding the acquisition of new goods or the payment of additional expenses.

A new simplified registration system is established ,which will be regulated by the Enforcement Authority. It may only be used by beneficiaries with ongoing projects at the time of applying for this new simplified registration system. Assets replacing those already subject to the benefits may not be included in the application requesting additional benefits.

Tax Benefits. The Decree clarifies the use of the tax benefits as follows:

Accelerated amortization in the income tax. Beneficiaries may deduct the tax depreciation of assets related to the Project at once. This benefit will be applicable in the fiscal year in which the request was approved and to the extent the assets subject to accelerated amortization are in operation. In case the assets have been operated in fiscal years prior to the one in which the request is approved, this benefit may be used for the remaining unamortized value of the assets subject to the benefit.

Fixed assets, special equipment, parts or components of goods acquired for the promoted project will be determined by the Enforcement Authority through the issuance of an administrative Resolution which will establish the conditions or requirements in each case. Necessary expenses for installing them and the software required for their operation may also be included in this benefit.

Assets must remain affected to the promoted project during its entire execution and any change and/or replacement of the assets must be reported to the Enforcement Authority.

Advance refund of the VAT. The refund of VAT or the credits to offset other taxes from invoices issued to the beneficiaries in connection with the purchase of fixed assets, special equipment, parts or components of such assets may be requested as from the first business day immediately following the due date of the VAT tax return. In order for the benefit to be applicable, the VAT tax return must be filed in due time and form. The Argentine Tax Authority (AFIP) will establish the procedure and the deadlines.

Beneficiaries must constitute a guarantee for 100% of the amount of the tax benefit granted. Such guarantee will be constituted in favor of AFIP, which in turn will define the maintenance of its validity, as well as its timely release.

Tax Credit Bond. Beneficiaries of approved research and/or development projects may convert 50% of the expenses destined to the hiring of technical assistance, research, and/or development services with relevant entities of the National Science, Technology, and Innovation System into a Tax Credit Bond under the terms established by the Enforcement Authority.

Such bond will be transferable only once, under the terms provided by AFIP and may be used by beneficiaries and/or assignees for a 10-year period as of the date of its issuance. Once this period has elapsed, any credit balances that may exist will be refunded.

The Tax Credit Bond may be used for the payment of Income Tax and Value Added Tax (VAT), either as advance payments or as balances of tax returns for obligations occurring after the date of approval of the project. In the case of import operations, it may be used for the payment of Income Tax and VAT and the corresponding withholdings and perceptions.

The bond may not be used to pay obligations derived from the substitutive or joint and several liability of the taxpayers for debts of third parties or from their collection agent role. Also, it may not be used to pay taxes destined to specific fund financing, nor debts related to the Social Security System.

The aforementioned benefits are not mutually exclusive and may be granted concurrently, to the extent that the beneficiaries have not received benefits for their goods or expenses through other promotion regimes in force at the national level.

Verification and control costs. These costs will be paid by the beneficiaries, who must pay a fee calculated on the amount of the approved tax benefits, which may not exceed 7% of the total.

Audits. The maintenance of the benefits will be subject to the approval of annual audits. The Enforcement Authority will determine the procedures, scope, and conditions of such audits which, in all cases, must review: (i) the maintenance of the requirements for obtaining the benefit, (ii) the compliance with the objectives and deadlines for the execution of the investment project and (iii) the allocation of the capital assets to the project.

Non-compliance. The following cases are deemed as events of default:

1. Lack of accreditation and/or filing the required documentation in the form and/or within the terms established by the Enforcement Authority and/or the lack of veracity of such documents.
2. Failure to maintain the requirements for obtaining the benefit.
3. The abandonment of the project and/or planned activity or activities within it, after the approval of the benefits, without any notification that justifies it.
4. Infringing the requirements of the allocation of fixed assets destined for the approved projects, which have been subject to the granting of benefits within the framework of this Regime.
5. Failure to comply with the requirements and/or observations made by the Enforcement Authority.
6. Failure to comply with the obligations set forth in the Decree and/or the complementary rules issued in connection with the Regime.

In the event of non-compliance, the penalties in Law No. 26270 will apply, as well as any penalties that applicable, provided in the corresponding criminal and/or social security and/or tax legislation.