On 12 April 2018, Argentina published, in the Official Gazette, General Resolution No. 4227/2018 (the Resolution), establishing the mechanism for nonresident investors to pay income tax on capital gains and interest.

The Resolution is effective 26 April 2018. For taxable events that occurred from 1 January 2018 to 25 April 2018, however, the withholding tax is due from 11 June to 13 June, depending on the taxpayer identification number (CUIT Number).

The Resolution covers:

• Interest from term deposits in Argentina banks, investments in LEBACs (Argentina Central Bank Notes) and certain other investments, obtained by investors located in jurisdictions considered cooperators for tax purposes
• Capital gains obtained by investors located in jurisdictions considered cooperators for tax purposes
• Investors located in non-cooperating jurisdictions
• Payment of the capital gains tax for transactions performed before the entry into force of tax reform Law 27,430

Interest from term deposits in Argentina banks, investments in LEBACs and certain other investments, obtained by investors located in jurisdictions considered cooperators for tax purposes

A 5% withholding tax rate applies to investments in Argentine Pesos (ARS) without an adjustment clause (e.g., a clause to adjust for inflation). A 15% withholding tax rate applies to investments in ARS with an adjustment clause or investments denominated in foreign currency.

Generally, for foreign investors that qualify as banking entities under the supervision of a Central Bank or similar authority, and local borrowers that qualify as banking entities under the supervision of the Argentine Central Bank, only 43% of the investment income will be presumed to be Argentine-source income. The effective tax rates will be 2.15% (i.e., 43% x 5%) or 6.45% (i.e., 43% x 15%), respectively.

The following parties will be required to act as withholding agents:

• The Argentine banks for interest arising from term deposits in Argentina banks
• The entities acting as custodians for LEBACs (Argentine Central Bank Notes)
• The parties that pay the interest arising from investments in negotiable obligations (in Spanish, Obligaciones Negociables), certain common investments funds, debt titles of financial trusts and similar contracts, bonds, and certain other investments
• The depositary company or the integral placement and distribution agent (in Spanish Agente de Colocación y Distribución Integral or ACDI) for participations in common investment funds

Capital gains obtained by investors located in jurisdictions considered cooperators for tax purposes

A 15% tax rate will apply to capital gains from shares or other equity participations, including certain common investment funds and financial trusts. For debt instruments (including LEBACs, negotiable obligations, bonds, etc.), however, a 5% tax rate will apply to capital gains from investments in ARS without an adjustment clause, and a 15% tax rate will apply to capital gains from investments in ARS with an adjustment clause or investments denominated in foreign currency.

The net taxable gain on the disposal of securities will equal 90% of the amount paid for the acquisition (presumed net gain approach) or the actual net gain determined in accordance with the provisions of the income tax law (actual net gain approach).

When the income beneficiary opts to determine the net taxable gain through the actual net gain approach, the beneficiary will be required to inform the withholding agent or its legal representative appointed in Argentina of its decision to follow the actual net gain approach. The beneficiary must provide the documentation evidencing the acquisition and subsequent disposal of the corresponding securities, as well as the determination of the tax cost basis. The withholding agents and the legal representatives must keep these documents and make them available, along with any working papers supporting the calculation of the corresponding withholding, to the Argentine Federal Tax Authorities (AFIP).

The Resolution requires the following parties to pay the tax:

• When the acquirer is a resident in Argentina, such acquirer will be the party required to pay the tax, except in the following cases:
  • For participations in common investment funds, the depositary company or the integral placement and distribution agent (in Spanish Agente de Colocación y Distribución Integral or ACDI) will be the responsible party.
  • For LEBACs and certain other investments issued through a public offering authorized by the National Securities Commission (in Spanish Comisión Nacional de Valores or CNV), the entities acting as custodians will be responsible.
• When the acquirer is a foreign resident, the payment of the tax will be performed by a legal representative of the seller duly appointed in Argentina; if there is no legal representative appointed, the payment will be made by the foreign seller through an international bank transfer.

The Resolution establishes the following mechanisms for the payment of the tax:

• When the tax is paid by a resident withholding agent or the legal representative appointed in the country, the general mechanism available to residents for the remittance of income tax withholdings (known as SIRE) should be used.
• When the tax is paid by the foreign beneficiary, the payment should be made through an international bank transfer in US dollars or Euros, by the 10th working day (considering the Argentine time zone) after the date of the transaction.

For international bank transfers, the amount to be transferred will be calculated considering the exchange rate applicable on the day before the payment. The Resolution sets forth the requirements for the transfer to be considered valid. For example, the transfer should include the CUIT Number of the Argentine entity whose shares (or other participation interests) are transferred.

Investors located in non-cooperating jurisdictions

For foreign beneficiaries located in, or funds arising from, jurisdictions considered as "non-cooperating" for tax purposes, the Resolution imposes a 35% withholding tax rate on the corresponding presumed net income.

Payment of the capital gains tax for transactions performed before the entry into force of tax reform Law 27,430

For investment transactions performed by foreign beneficiaries before the entry into force of Law 27,430, the due date for the remittance of the capital gains tax will be from 11 June to 13 June, depending on the CUIT Number. The capital gains tax must be paid through:

• The general mechanism available for residents for the remittance of income tax withholdings, in the cases of:
  • Transactions not performed through securities exchange markets in which the acquirer was a resident in the country
  • Transactions performed through securities exchange markets in which the settlement and clearing agents have performed the withholdings without remitting them to the tax authorities
• An international bank transfer (as described previously) for foreign acquirers with transactions not performed through securities exchange markets

Companies doing business and different stakeholders investing in Argentina should consider the consequences of these additional regulations and evaluate the effect on their current or future Argentine investments and operations.

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CONTACTS

For additional information with respect to this Alert, please contact the following:

Pistrelli, Henry Martin & Asociados S.R.L., Buenos Aires

• Carlos Casanovas
  carlos.casanovas@ar.ey.com
• Gustavo Scravaglieri
  gustavo.scravaglieri@ar.ey.com
• Ariel Becher
  ariel.becher@ar.ey.com
• Pablo Baroffio
  pablo.baroffio@ar.ey.com
• Darío Corrente
  dario.corrente@ar.ey.com
• Juan Manuel Iglesias
  juan.iglesias@ar.ey.com

Ernst & Young, LLP, Latin America Business Center, New York

• Pablo Wejcman
  pablo.wejcman@ey.com
• Ana Mingramm
  ana.mingramm@ey.com
• Enrique Perez Grovas
  enrique.perezgrovas@ey.com

Ernst & Young LLP (United Kingdom), Latin American Business Center, London

• Jose Padilla
  jpadilla@uk.ey.com

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ATTACHMENT

PDF version of this Tax Alert