Executive summary

On 19 December 2024, the Ministry of Foreign Relations, announced that a tax treaty to prevent double taxation, tax evasion and tax avoidance between Argentina and China (Tax Treaty) — initially signed on 2 December 2018 — had entered into force on 26 November 2024 and would become effective as of 1 January 2025.

On 18 October 2024, Law No. 27,780 was published in the Official Gazette, through which the Tax Treaty was approved. Additionally, China had already complied with the domestic requirements for the entry into force of the Tax Treaty, which had been notified to Argentina on 27 June 2019. (For background, see EY Global Alert, Argentine Chamber of Deputies approves Multilateral Instrument and other tax treaties, dated 9 October 2024)

The Tax Treaty will be applicable:

• With respect to taxes withheld at source — on amounts paid from 1 January 2025
• With respect to Income Tax and Wealth Taxes — for fiscal years beginning on 1 January 2025

Key Argentine tax aspects

The Tax Treaty defines the term "permanent establishment" (PE) as including "a mine, an oil or gas well, a quarry or any other place of extraction of natural resources" without mentioning exploration activities, which is included in Income Tax Law (ITL) definition of a PE. This distinction seems to indicate a restriction in the Treaty's definition of a PE when compared to the ITL's definition in Argentina.

Under the Tax Treaty, the withholding tax applicable to dividend payments is reduced to 5% if the beneficiary is an institution owned or controlled by the other Contracting State. The Protocol to the Tax Treaty mentions several entities from China that would qualify.

Although the withholding tax on interest is reduced to 12% under the Tax Treaty, in certain special cases interest is exempt from withholding tax. This includes interest on commercial credits, interest granted by banks on preferential terms for a period of at least three years, interest paid to the other Contracting State or to its Central Bank, and interest on loans guaranteed or insured by an institution owned or controlled by the other State.

The Treaty provides a withholding tax of up to 10% for royalties (including payments for technical assistance), except for those originating from the use, or right of use of news, copyrights or container rights, for which withholdings of up to 3%, 5% and 7%, respectively, are contemplated.

A 5% withholding tax is provided for capital gains from the sale of shares or participations in the capital of a company resident in one of the Contracting States, when obtained by institutions owned or controlled by the other Contracting State (already described in the case of dividends).

A nondiscrimination clause in the Tax Treaty provides that interest, royalties and other expenses that an entity of a Contracting State pays to a resident of the other Contracting State may be deducted under the same conditions as if they were paid to a local resident (provided the payments are made on an arm's-length basis).

The Treaty includes the possibility of claiming a tax credit for similar taxes paid in the other Contracting State without restricting the credit to foreign-source income. For example, an Argentine resident providing services to China from Argentina could compute as a credit the income tax paid in China, even if the income obtained is Argentine-source income.

The Treaty also includes a general anti-abuse clause based on the Principal Purpose Test. This means that a benefit under this Tax Treaty shall not be granted in respect of an item of income or capital if it is reasonable to conclude, based on all relevant facts and circumstances, that obtaining the benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit.

Implications

Companies doing business in Argentina and China should consider the changes introduced by the Tax Treaty and evaluate the possible effect the Treaty could have on their operations and activities.