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17 December 2019

Argentina reorders income tax law and its regulatory decree and issues list of jurisdictions considered “non-cooperating” for tax purposes

Through Decree No. 824/2019, published in the Argentine Official Gazette on 6 December 2019, the Argentine Government reordered the Income Tax Law (ITL) for ease of reference and interpretation.

In addition, Decree No. 862/2019, published in the Argentine Official Gazette on 9 December 2019, reordered the ITL’s Regulatory Decree and incorporated provisions that were contained in different regulations (e.g., taxation of nonresident investors, tax rules applicable to real estate transactions and severance payments). The decree also lists the countries that should be considered “non-cooperating” for tax purposes. The list is effective 9 December 2019.

Effect of “non-cooperating” jurisdiction provision

The “non-cooperating” jurisdiction provision affects certain provisions of the ITL and the Tax Procedural Law.

Specifically, a 35% income tax withholding rate, instead of the 5% or15% income tax withholding rate, would apply to capital gains from the sale of:

  • Shares
  • Public bonds
  • Negotiable obligations
  • Common investment funds
  • Certificates of participation or debt titles of financial trusts and similar contracts
  • Other bonds
  • Certain other investments obtained by foreign investors located in “non-cooperating” jurisdictions or the investments’ funds arising from “non-cooperating” jurisdictions

Additionally, transactions conducted with individuals or entities located in “non-cooperating” jurisdictions are not considered performed on an arm’s-length basis and, thus, are subject to transfer-pricing analysis and documentation obligations. Expenses incurred by Argentine entities that are deemed Argentine-source income in favor of foreign parties established in “non-cooperating” jurisdictions should be deducted for tax purposes in the year of accrual only if the payment is made by the date when the income tax return for that year is due. Otherwise, the expense must be deducted in the year of payment.

The “non-cooperating” jurisdiction provisions affect the exemption for foreign beneficiaries applicable to:

  • The sale of shares
  • Interest income
  • Capital gains on the sale of public bonds, negotiable obligations and share certificates issued abroad that represent shares that are issued by Argentine companies (i.e., ADRs) and publicly traded in stock exchanges under the supervision of the Argentine Securities and Exchange Commission

The exemption will apply, however, if the foreign beneficiaries do not reside in, and the amounts do not arise from, a “non-cooperating” jurisdiction.

The non-cooperating provisions also affect:

  • Interest paid to foreign banks established in “non-cooperating” jurisdictions, which will be subject to a 35% income tax withholding, instead of the 15.05% income tax withholding that applies for payments to banks established in other jurisdictions
  • Amounts from “non-cooperating” jurisdictions that should be considered as an unjustified increase in net worth subject to income tax and value-added tax, except when the taxpayer can prove that the amounts have been previously declared

New “non-cooperating” jurisdiction list

The complete list of “non-cooperating” jurisdictions is as follows:

  1. Afghanistan
  2. Algeria
  3. Angola
  4. Ascension Island
  5. Bangladesh
  6. Benin
  7. Bhutan
  8. Bolivia
  9. Bosnia and Herzegovina
  10. Botswana
  11. Brechou
  12. Burkina Faso
  13. Burundi
  14. Belarus
  15. Cambodia
  16. Cape Verde
  17. Central African Republic
  18. Chad
  19. Comoros
  20. Cuba
  21. Democratic Republic of Congo
  22. Djibouti
  23. East Timor
  24. Egypt
  25. Equatorial Guinea
  26. Eritrea
  27. Ethiopia
  28. Federated States of Micronesia
  29. Fiji
  30. Gabon
  31. Gambia
  32. Guinea
  33. Guinea-Bissau
  34. Guyana
  35. Haiti
  36. Hashemite Kingdom of Jordan
  37. Honduras
  38. Iran
  39. Iraq
  40. Ivory Coast
  41. Kenya
  42. Kiribati
  43. Kyrgyz Republic
  44. Laos
  45. Lesotho
  46. Liberia
  47. Libya
  48. Madagascar
  49. Malawi
  50. Maldives
  51. Mali
  52. Mauritania
  53. Mongolia
  54. Montenegro
  55. Mozambique
  56. Myanmar
  57. Namibia
  58. Nepal
  59. Nicaragua
  60. Niger
  61. North Korea
  62. Oman
  63. Palau
  64. Papua New Guinea
  65. Paraguay
  66. Philippines
  67. Pitcairn Islands
  68. Republic of the Congo
  69. Rwanda
  70. Saint Helena Island
  71. Solomon Islands
  72. Sao Tomé and Principe
  73. Sark Island
  74. Sierra Leone
  75. Somalia
  76. South Sudan
  77. Sri Lanka
  78. Sudan
  79. Suriname
  80. Swaziland
  81. Syria
  82. Tajikistan
  83. Tanzania
  84. Thailand
  85. Togo
  86. Tonga
  87. Trinidad and Tobago
  88. Tristan
  89. Tuvalu
  90. Uzbekistan
  91. Vatican City
  92. Vietnam
  93. Yemen
  94. Zambia
  95. Zimbabwe

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

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

Ernst & Young LLP (United States), Latin American Business Center, New York

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

Ernst & Young Tax Co., Latin American Business Center, Japan & Asia Pacific

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Document ID: 2019-6595

 
 

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