An Overview of Argentina’s Newly Regulated “Solidarity Contribution”

On January 28, the Argentine Executive issued Decree No. 42/2021 which regulates the so-called “Solidarity Contribution” provided by Law No. 27,605. In addition, the Argentine Tax Authority also issued General Resolution No. 4930/2021 (“GR 4930”), which was published in the Official Gazette on February 8, 2021, and stipulates how that Contribution is to be calculated and paid, while establishing a new reporting regime.

Clarifications on how the Solidarity Contribution (tax base, appraisal, subjects of law) is to be determined

Decree No. 42/2021 which, came into force last January 29, and GR 4930, set forth the following provisions:

 

Section 1 of Decree No. 42/2021 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: one, 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 two, 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, one 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 two. Also, if a person holds shares in different companies, he or she must use the same method to appraise all of his or her holdings.

Finally, the regulation states that companies may be required to provide appraisal-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 level), 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 estates residing outside Argentina must appoint a substitute obligor to calculate and pay the Contribution.

All assets deemed as Household Assets for the purposes of Personal Assets Tax are excluded from the Solidarity Contribution calculation.

GR 4930 also stipulates that the appraisal of the assets to be declared by those obligated under the Solidarity Contribution will be determined in the Argentine Tax Authority’s website; which, in turn, contains the guidelines to be followed.

 

Scope of the repatriation obligation to reduce the applicable tax rate for assets located outside Argentina

The period for repatriating assets 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).

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 their total financial assets held outside Argentina will be subject to the highest tax rates stipulated in Section 4 of Law No. 27,605, rather than to the elevated rates in Section 5.

 

In addition, the exception stands if:  

A) the repatriated funds are deposited in an account under the holder’s name, with one of the entities regulated under Law No. 21,526, until to December 31, 2021; or

B) 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) making capital contributions  to companies governed by the Argentine General Companies Law in which the contributor was already holder of the capital contributions at the date of entry into force of Law No. 27,605, to the extent that the main activity of those companies was not financial. With respect to (4), companies receiving such contributions will be restricted from distributing 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 until December 31, 2021.

Moreover, RG 4930 clarifies that repatriated funds must: (a) remain deposited until December 31, 2021 in an account opened in the name of its holder, in financial entities governed by Law No. 21,526 and its amendments, in accordance with the provisions of Section 6 of Decree No. 42/2021, and the conditions to be determined by the Argentine Central Bank, or (b) remain earmarked, once the deposit has been made, for any of the means mentioned in section B) of the previous paragraph.

In addition, those who carry out the repatriation of financial assets must: draft a special report issued by a local licensed accountant, describing certain issues regarding reasonability, existence and legitimacy of all the assets located outside Argentina, and at the time of repatriation, altert the financial entity that the blank field in the International Bank Transfer form (Field 70 of Swift message MT103) must read “Repatriación Aporte Solidario” (Repatriation for Solidary Contribution).

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 stake.

Regarding the definition of financial asset located outside Argentina, GR 4930 makes reference to the Personal Assets Law and to the scope of Decree No. 42/2021. The concept includes: the holding of foreign currency deposited in banks and/or financial and/or similar entities abroad: corporate shares and/or equivalents (private securities, shares, quotas and other participations) in all kinds of entities, companies or enterprises, with or without legal personality, incorporated, domiciled, based or located abroad, including unipersonal enterprises; rights inherent to the character of beneficiary, trustee (or similar) of trusts (trusts or similar) of any kind incorporated abroad, or in private interest foundations abroad or in any other kind of similar assets located in, based in, domiciled and/or incorporated abroad; all kinds of financial instruments or security titles, such as bonds, negotiable instruments, representative securities and certificates of deposit of shares, quotas of mutual funds and similar instruments, whatever their denomination; credits and all kinds of foreign rights, which can have economic value and all other types provided for in the regulations, including specification of the substitute obligor in cases in which elusive or evasive maneuvers are detected.

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

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

 

Regulation of the Procedure for Calculating and Paying the Contribution

GR 4930 establishes that sworn statements are to be submitted through the so-called “Solidarity and Extraordinary Contribution” service, which is available on the Argentine Tax Authority's website. Once submitted, the statement will generate a “1555 Form.”

The deadline for submitting the sworn statement and paying any balances resulting from the latter is March 30, 2021.

If there is a substitute obligor, prior to generating and submitting the sworn statement, they must register as such through the Argentine Tax Authority’s webpage, with their Tax ID and password, using the “Registry System” service. They’ll then have to go to “Tax Registry” and choose the “Relations” option. Lastly, they’ll have to select the “Substitute Obligor - Solidarity Contribution” option.

Regarding payments, GR 4930 sets forth that the obligation may be canceled by electronic transfer of funds or through the Argentine Tax Authority’s “electronic wallet,” generating a digital “voucher” (“volante electrónico de pago”)  that must read: “Aporte Solidario y Extraordinario 238, concepto 019, subconcepto 019.”

 

New Reporting Regime

The GR 4930 establishes a reporting regime, to be completed between March 22 and April 30, 2021, through the “"DDJJJ INFORMATIVA - APORTE EXTRAORDINARIO” service, which will be available on the Argentine Tax Authority’s website. The following are subject to reporting their assets as of March 20, 2020:

 

A) Those who are subject to the Solidarity Contribution.

B) Those who are subject to the Solidarity Contribution and who, by December 31, 2019, had assets valued at an amount equal to or greater than ARS 130,000,000, according to the sworn personal assets tax statement of that tax period.

C) Those who are not subject to the Solidarity Contribution and who, by December 31, 2018, had assets valued at an amount equal to or greater than ARS 80,000,000, according to the sworn personal assets tax statement of that tax period.

Those mentioned in paragraphs B) and C) shall include in their sworn reporting statements any assets they own by December 18, 2020.

Lastly, according the Argentine Tax Authority, this reporting regime aims to trace taxpayers’ financial variations to detect possible evasive maneuvers.