Corporate Tax 2024 Comparisons

Businesses generally adopt a corporate form as follows:

• sociedades anónimas (limited companies, or SAs);
• sociedades de responsabilidad limitada (limited liability companies, or SRLs); or
• sociedades anónimas simplificadas (simplified limited companies, or SASs).

Generally, the same tax treatment applies to these entities: up to 35% corporate income tax (CIT) and 7% dividends tax. All these entities are taxed as separate legal entities, and provide limited liability to their shareholders. Only in certain exceptional cases of bankruptcy or fraud (eg, in the fields of labour and tax law) may equity holders be held liable for the legal entity’s obligations.

Division of Corporate Capital

The corporate capital of an SA and an SAS is divided into shares, while in an SRL it is divided into quotas (hence the owners of the equity are named quotaholders).

An SRL requires the existence of at least two quotaholders. An SA and an SAS can have one or more shareholders, although sole-shareholder SASs are subject to more strict governance and control requirements. If an SA or an SAS has only one shareholder, the corporate capital must be paid in full at all times; if there is more than one shareholder, the initial corporate capital and further capital increases in cash can be paid 25% upfront, with the balance paid during the subsequent two years. Additionally, single-shareholder companies cannot be shareholders of other single-shareholder companies.

The minimum registered capital for creating an SA is ARS100,000; however, depending on the activity to be pursued by the company, the Public Registry of Commerce may require a higher corporate capital (usually, an initial registered capital of ARS400,000 passes the test). To create an SAS, the minimum registered capital must be of an amount equivalent to two times the minimum wage in force at the time of incorporation (this currently amounts to ARS156,000).

Corporate Bodies

Legal entities have three corporate bodies:

• a management body (comprised of directors or managers);
• a governing body (meetings of equity holders); and
• an audit body (a syndic, which is mandatory or optional, depending on the legal entity).

An SA is managed by a board comprising one or more directors. The majority of the directors must be domiciled in Argentina. Directors may hold office for a tenure of up to three fiscal years. However, at the end of the tenure, the tenure can be renewed. The board must meet at least once every three months. An SA is represented by the chairman of the board of directors.

The management of an SRL is performed by one or more managers, who can act individually, jointly or organised as a board, depending on the provisions of the by-laws. The majority of the managers must be domiciled in Argentina. Managers may hold office indefinitely.

The management of the SAS is conducted by managers, who can act individually, jointly or organised as a board, depending on the provisions of the by-laws. At least one of the managers must be domiciled in Argentina, which relaxes the requirements of SAs and SRLs. Managers may hold office indefinitely. One of the managers must be appointed as the legal representative of the SAS.

In all cases, the members of the management of the legal entity must be individuals and not legal entities. The members of the management are not required to be equity holders.

Meetings

At least annually, the equity holders of a legal entity will hold a meeting to:

• approve financial statements and make a decision regarding the result of the fiscal year (profit or loss);
• consider the performance of the members of management;

• amend the organisational documents;
• increase or reduce the corporate capital;
• approve mergers and spin-offs; and
• appoint or remove members of management.

Decisions of the equity holders of an SAS and an SRL may be obtained through written consent or voting via mail.       

Commonly used transparent entities include the following:

• an administrative trust;
• a public financial trust; and
• closed-end investment funds.

These structures are commonly used in a wide range of businesses, from real estate to venture capital, because of their fiscal efficiency (which should be analysed on a case-by-case basis) and other corporate advantages (transparent structures are more flexible than regular incorporated businesses).

The above three types of entities can be transparent under certain conditions:

• administrative trusts are transparent if settlors are, at the same time, beneficiaries, and if there are no foreign beneficiaries in the trust structure; and
• public financial trusts and closed-end investment funds are transparent if they have a public offer and Argentine (local) investments.

Determining the residence of incorporated businesses and transparent entities for tax purposes can be complex, especially when double taxation treaties are involved.

Tests for incorporated businesses are as follows.

• Incorporation test: this is the most common test, considering the country where the company is incorporated or registered as its residence.
• Place of effective management (PEM): PEM considers where the actual management and control are exercised.
• Treaty tie-breaker rules: double taxation treaties often include specific tie-breaker rules to resolve conflicting residence claims when both countries consider the entity resident based on their domestic laws. These rules usually prioritise factors such as place of incorporation and or effective management.

Tests for transparent entities are as follows.

• Treaty provisions: it will be necessary to refer to the specific double taxation treaty applicable to the situation, as it might override the general tests mentioned below.
• Residence of partners/members: for entities such as transparent trusts or entities, the governing law and/or the residence of the members can determine the entity’s residence for tax purposes.
• Anti-avoidance rules: tax authorities might apply anti-avoidance rules to prevent artificial shifting of residence for tax benefits.

Incorporated Business Income Tax

The Income Tax Law applies a progressive tax rate, according to the following criteria for FY2023 (subject to being updated in each relevant fiscal period by the IPC index):

• if the net income of the company does not exceed ARS14.3 million in the fiscal year, a 25% tax rate applies;
• if the net income exceeds ARS14.3 million but is less than ARS143 million, a fixed amount of ARS3.6 million must be paid, plus a tax rate of 30% over the income exceeding ARS14.3 million; and
• if the net income exceeds ARS143 million, a fixed amount of ARS42.2 million must be paid plus a tax rate of 35% over the income exceeding ARS143 million.

Resident companies are subject to incorporated business income tax on a worldwide income basis – ie, they are taxed in Argentina on their local-source and foreign-source profits. However, resident companies can compute as tax credit similar income tax payments made abroad on foreign-source income, subject to certain limits.

A transparent entity does not pay taxes by itself; the foreign individual/entity will pay via withholding tax and individual resident shareholders must pay taxes directly, depending on the type of income obtained, respectively.

Taxable profits are calculated based on the tax balance sheet, which derives from the accounting balance sheet, with some tax adjustments on deductions and credits (for example, exchange rate differences, depreciations, debts with related parties, inflation adjustment).

Generally, incorporated businesses are taxed on an accrual basis. However, this general rule may have some exceptions: deductions must be made on a receipt basis for Argentine-source payments to related companies or companies incorporated in low- or no-tax or non-cooperative jurisdictions.       

At a national level, the knowledge economy regime offers tax incentives for technology investments for incorporated business that develop relevant activities.

The regime offers various tax advantages (income tax and VAT reductions, collection exclusions for certain regimens, among others) and usually requires the beneficiary to prove that a substantial part of its expenses is used for R&D purposes.

The following are examples of included relevant or promoted activities. For some activities, a case-by-case analysis will be needed:

• software and digital services in general;
• audio-visual production and post-production;
• bioindustries;
• geological prospecting services;
• electronics and communications;
• professional services (export only);
• nanotechnology and nanoscience;
• the aerospace and satellite industry;
• engineering for the nuclear industry; and
• 4.0 technology.

Subject to compliance with certain conditions, the included tax benefits are the following:

• tax benefits stability;
• a non-transferable tax credit bonus equivalent to 70% of the employer contributions effectively paid with respect to employees assigned to work in promoted activities;
• income tax (related to promoted activities) could be reduced by up to 60%, 40% or 20% depending on the kind of legal entity applying for the benefit (micro, small, medium and macro legal entities);
• a VAT collection regimen will not apply to beneficiaries that carry out exportation related to promoted activities; and
• deductible expenses – income tax paid or withheld abroad will be treated as deductible expenses for the income tax assessment of the local entity.

Provinces of the country may adhere to the national regime and regulate local benefits. In general, the benefits included by them are related to turnover tax, stamp tax and/or real estate property tax.

At a federal level, Argentina provides several special incentive regimes, including:

• the Renewable Energy Regime;
• the Forestry Promotion Regime;
• the Mining Regime;
• Tierra del Fuego’s Special Customs Zone; and
• the RIGI and the SME (PyME Act).

Renewable Energy Regime

Acts No 26,190 and 27,191 established a special regime with the purpose of promoting the generation of electricity from renewable sources. The main tax benefits under this regime are:

• accelerated depreciation of fixed assets for CIT purposes;
• an anticipated VAT refund corresponding to goods or infrastructure works included in the investment project for new renewable energy plants; and
• import duty exemptions for certain assets related to renewable energy projects.

Forestry Promotion Regime

Act No 25,080 established a special regime for the purpose of promoting forestry activity. The main tax benefits under this regime are:

• accelerated depreciation of fixed assets for CIT purposes;
• an anticipated VAT refund corresponding to goods or infrastructure works included in the investment forestry project;
• tax stability; and
• valuation of reserves at market value.

Mining Regime

Act No 24196 created an investment regime for mining activity that applies to individuals and legal entities.

The tax benefits under this regime include tax stability, accelerated depreciation of assets, CIT and custom duties incentives, as well as the possibility to obtain a VAT reimbursement if certain conditions are met.

Tierra del Fuego Tax Regime

Act No 19,640 established a special tax regime to promote activities developed in Tierra del Fuego (an Argentine province). Under this regime, companies domiciled in such province can obtain a general tax exemption (including on CIT and VAT) and enjoy significant benefits in connection with customs duties.

Regime for the Promotion of Major Investments (RIGI)

The Regime for the Promotion of Major Investments (RIGI) is a new special regime that is currently under discussion in the Argentine Congress. The regime would apply to new or expanded projects in seven key sectors: agriculture, infrastructure, forestry, mining, gas and oil, energy and technology. Under the RIGI, projects would enjoy a number of benefits, including:

• a 25% corporate income tax (CIT) rate, compared to the current rate of 30% or 35%;
• accelerated amortisation for investments;
• unlimited carry-forward of net operating losses;
• a 0% tax rate on dividends and profits distributed after three years;
• the ability to cancel value-added tax (VAT) to suppliers with fiscal credit certificates;
• exemptions from import and export duties;
• exemption from the obligation to liquidate export proceeds at the market exchange rate; and
• regulatory stability in tax, customs and foreign exchange matters.

The rights and incentives acquired under the RIGI would be considered protected investments under international law. This means that if the Argentine government were to violate the regime, it could be held liable to the project owner.

The RIGI is a significant initiative that could help to attract foreign investment and promote economic growth in Argentina.

SME Regime

In 2016, Act No 27,264 was enacted, creating a special tax regime for small and medium-sized enterprises (SMEs). This regime provides several tax benefits for these types of companies:

• deferral on VAT payment (90 days, instead of the general rule of monthly payments); and
• small and micro enterprises may compute 100% of the amounts paid pursuant to the debits and credits tax against their CIT.

Generally, the basic rules on loss relief include a carry-forward rule, by which the net operating losses of one fiscal year may be offset against income tax to be paid for the next five years.

There are certain losses that can only be offset against profits generated from similar sources, such as:

• capital loss from the sale of stock, bonds, derivatives or other securities issued by Argentine companies; or
• income derived from a foreign source.

Certain limits are imposed on the deduction of interest by local corporations. If the local entity is related to the local/foreign entity to which it pays interest, it can only deduct interest payments for up to 30% of its EBITDA (thin-capitalisation rules), although certain exceptions may apply.

The law establishes that interest and foreign exchange losses on financial debts owed to related parties will be tax-deductible, subject to certain quantitative limitations, except for those debts generated by acquisitions of goods, leases and services related to the company’s business. This interest will be deductible at the higher of the following limits:

• an annual cap established by the federal executive power (currently ARS1 million); or
• 30% of the net profit before deducting the interest referred to here and amortisations allowed by law.

Non-deductible interest can be carried forward for five years.

Among other exclusions, in broad terms the deductibility limitation does not apply to:

• financial entities;
• financial trusts;
• companies whose main business is the execution of lease purchase agreements, and whose secondary business consists exclusively of financial activities;
• when the ratio of interest to net income of the local entity is less than or equal to the ratio that the economic group has for liabilities contracted with independent creditors and its net income; and
• when evidence can be produced that the foreign beneficiary has paid income tax over the interest via withholding tax (WTX) – in such case, the deductibility limitations will only apply to losses derived from foreign-exchange losses.

Argentina typically follows a “separate entity” approach for consolidated tax grouping. This means each company can only offset its losses against its own future income tax. The only exception to this approach relates to the thin-capitalisation rules (discussed in 2.5 Imposed Limits on Deduction of Interest). These rules provide an exemption to the standard interest deduction limit, based on a percentage of the entire economic group’s debt to which the local entity belongs.

Capital gains tax on the sale of Argentine private company shares is levied on the seller, regardless of residency status or whether the sale is direct or indirect.

Local corporations are subject to a progressive tax rate of 25%, 30% or 35% on the net gain, depending on their accumulated income for the fiscal year.

Foreign sellers (both corporations and individuals) can choose between a 15% tax on the net capital gain or a 13.5% tax on the total sales price. If the seller is based in a non-cooperative jurisdiction, the rates increase to 35% or 31.5%, respectively.

Indirect sales of equity participations acquired after 1 January 2018 by foreign sellers are subject to capital gains tax if at least 30% of the market value of the shares derives from Argentine assets, and if the shares being sold represent at least 10% of the foreign company’s equity.

Indirect transfers of shares within economic groups are exempt from this tax under certain conditions. Foreign sellers (except those from non-cooperative jurisdictions) are exempt from capital gains tax on the sale of shares listed on stock markets authorised by the Argentine Securities Commission.

Argentine taxes are categorised as federal and local. Federal taxes include:

• VAT;
• Personal Property Tax (on shares);
• bank debits and credits tax;
• customs duties;
• excise tax; and
• liquid oil tax.

Local taxes include:

• turnover tax; and
• stamp tax.

A breakdown of the most relevant follows.

VAT

• Applied to sales of goods, services and imports (including services imports) by businesses operating in Argentina.
• Exports are taxed at 0%, and exporters can request refunds for VAT paid.
• General rate: 21%.
• Reduced rate: 10.5% for specific goods and services.

Debits and Credits Tax

• Debits and credits in bank accounts are taxed at a rate of 0.6% each, resulting in a 1.2% consolidated impact. Exceptions and reduced rates may apply.
• Companies can claim 33% of their payments as a credit against corporate income tax (CIT). Small and micro enterprises under the SME regime can claim 100% of their payments against CIT.

Customs Duties

• Import duties: 0% to 35%, with exceptions.
• Export duties: 0% to 35%, with exceptions. At the time of this publication, a bill is under consideration in the Argentine Congress that could regulate changes to the treatment of all export duties. In general, the bill would regulate a 15% rate, with exemptions for regional economies and higher rates in certain cases.

Incorporated businesses are also subject to a 0.5% annual personal property tax on shares, over the book value at the end of each fiscal year, as a surrogate payer for their shareholders.

Moreover, incorporated business acting as employers must pay employer contributions. The applicable tax rate depends on whether they qualify as SMEs. Currently, SMEs pay social security tax (SST) at a total tax rate of 24% on the gross salary of the employee, while non-SMEs pay at a rate of 26.4% (both rates include healthcare contributions).

Closely held local businesses generally operate in a corporate form.

Generally, corporate income tax rates (up to 35% on net income and 7% on corporate dividends upon distribution) result in a higher total effective tax rate (up to 37%) compared to individual progressive tax rates (ranging from 5% to 35% depending on net income). Additionally, individual professionals operating under a non-corporate structure may be eligible for specific local tax benefits (eg, turnover tax) depending on the location.

There are no rules preventing closely held corporations from accumulating earnings for investment purposes. Actually, corporations benefit from doing so because they defer the tax on dividends that will be levied with tax only upon distribution.

Capital gains of domestic individual residents and foreign beneficiaries (individual or corporate) are taxed at 15% on their capital gain. Foreign beneficiaries can choose to pay 13.5% withholding tax (WTX) of the total sale price or 15% on their capital gain.

Dividends distributed to both domestic and foreign beneficiaries are taxed at a rate of 7%. This tax rate is usually lower than the WTX stipulated in double taxation treaties (DTTs) between Argentina and other countries.

Capital gains from shares on local stock exchanges are exempt for domestic individual residents and foreign beneficiaries (individuals and corporations not located in non-cooperative or low-tax/no-tax jurisdictions). However, gains from shares on other exchanges are taxed at 15% on the net gain. Foreign tax credits may apply to resident individuals. Dividends are subject to a 7% withholding tax.

In the absence of income tax treaties, dividends are subject to a 7% withholding tax, and royalties are taxed at 21% if they involve transferring “technology” unavailable in Argentina and are registered with the Federal Bureau of Industrial Property (INPI). Other royalties face a 28% withholding tax.

Interest payments face a 15.05% withholding tax (when the creditor is a bank, among a few other cases) or 35%, depending in broad terms on the conditions and the creditor’s jurisdiction. However, most tax treaties cap these rates significantly. This interest, within certain limits, is considered a deductible expense for the Argentine company. Applying the gross-up method will lead to higher effective tax rates.

The DTTs with Brazil, Chile, Uruguay, Spain, Canada, the UK and the Netherlands are usually used by foreign investors. Nevertheless, most treaties signed by Argentina (except Bolivia, for example) follow the OECD Model Tax Convention on Income and on Capital, and have similar clauses.

Local tax authorities have started to challenge the use of treaty country entities by non-treaty country residents. For example, a leading case (Molinos Río de la Plata SA) was litigated before the Supreme Court, in which the tax authority challenged the use of the Argentina-Chile DTT by a Chilean holding entity with no substance and/or activity in Chile at the time dividends were distributed to its Argentine shareholder. The Supreme Court decided in favour of the tax authority in 2021, and considered that the DTT could not be applied because the transaction was considered as tax treaty abuse.

The transfer pricing rules in Argentina follow the OECD model, based on the principle that transactions between an Argentine company and related companies based outside Argentina (or with companies located in non-cooperative, low-tax or no-tax jurisdictions) must be made subject to the arm’s length principle. This analysis is made taking into account the functions, assets and risks assumed by each party in the relevant transaction.

Argentina’s rules include the five methods from the OECD model:

• the comparable uncontrolled price method;
• the net margin method;
• the resale price method;
• the cost-plus method; and
• the profit split method.

The most litigated subject matters regarding transfer pricing include:

• the election of comparable entities;
• comparability adjustments; and
• profit-level indicators.

Economic cycles are also a matter of heavy debate, considering the huge peaks, valleys, inflation and devaluations that the Argentine economy commonly undergoes. The agribusiness, pharma and car industries are usually in the spotlight.

Further problems include the financial costs and the bureaucracy involved in transfer pricing studies, because these require the taxpayer to fill in tax declaration forms each year.

The Argentine Federal Tax Administration (AFIP) frequently questions the use of related-party limited risk distribution arrangements. The AFIP carefully scrutinises whether the income allocation reflects the risks, functions and assets involved in each case, to ensure it aligns with the arm’s length principle.

Argentina has an additional rule called the “sixth method” (as compared to the OECD’s five methods).

Broadly (and as an example) in the case of exports of goods with a market value in which there is an international trader related to the resident export entity, where there is an international trader not related to the resident export entity but a nexus exists between the export and import entities, or where there is an international trader incorporated in a low- or no-tax jurisdiction or in a non-cooperative jurisdiction, the export entity must prove:

• that the trader remuneration complies with the arm’s length standard considering functions, assets and risks involved in the transaction – if the remuneration exceeds the market value, that excess will be considered a higher Argentine income for the export entity; and
• that the export agreement was registered at the tax authority, giving certain information – if the agreement was not registered, Argentine income derived from the export will be calculated over the value market of the goods at the moment of shipment (and not considering the price agreed with the international trader).

To comply with point the first point above, the following must be accredited:

• that the foreign trader has a real presence in the territory of residence and complies with the legal requirements for incorporation and registration, and for the presentation of financial statements and tax declarations, and with the applicable regulations in the place of residence;
• that the remuneration of the trader is related to its intervention in the transactions;
• the commercial intermediation modality used, the functions developed, the assets used and the risks assumed by the trader.

Another departure from the OECD standards is that the tested party must be the Argentine entity.

The latest tax reform introduced a mutual agreement procedure (MAP) to the Tax Procedure Law, but further regulation (and therefore, application) is still pending.

It can broadly be noted that the regulations establish that taxpayers can request a “Joint Determination of International Transaction Prices” (DCPOI) with the AFIP. This agreement must establish the criteria and methodology for determining prices, compensation amounts, or profit margins for transactions.

To date, key points of the regulations are as follows:

• the DCPOI request must be submitted to the AFIP, along with a proposal justifying the market value for the transactions involved;
• presenting a request does not suspend any tax filing or payment obligations under the transfer pricing regime;
• the agreed-upon method and pricing only bind the taxpayer and the AFIP;
• the agreement’s validity depends on transactions adhering to the established terms; and
• the AFIP will issue specific regulations regarding the application process, eligibility criteria and applicable sectors.

Compensating adjustments are not regulated in the Argentine transfer pricing legislation, but they may be allowed if a DTT applies. The latest tax reform introduced a MAP, but it still lacks further regulation.

In addition, for operations with traders as described in 4.6 Comparing Local Transfer Pricing Rules and/or Enforcement and OECD Standards, the AFIP is authorised by regulatory rules to reclassify operations if:

• there is a clear discrepancy between the actual operation and the described functions;
• the purpose of the operation is explained only for tax reasons; or
• the contractual conditions differ from those that would have been signed by independent companies.

Reclassification allows the AFIP to reclassify the operation itself and to consider it as a different one (and even to determine that the trader is not entitled to remuneration), as well as to establish the functions exercised, the assets involved, and the risks assumed in the specific case.

Local branches of non-local corporations are not generally taxed differently from local subsidiaries of non-local corporations. One notable difference between the taxation of branches and subsidiaries is that branches are not subject to personal property tax on an annual basis. However, one major disadvantage is that, in the case of branches, joint and several liability could apply to the parent company.

As a general rule, the sale of shares of Argentine private companies is subject to capital gains tax levied on the seller, regardless of its status (resident/non-resident) and whether the sale occurs directly or indirectly (ie, sale of shares in a foreign holding company). The applicable tax rate for a foreign seller is 15% on the net value of the sale or 13.5% of the total sales price, at the seller’s option (a reduced tax rate may apply if a DTT is applicable).

If the seller is based in a non-cooperative jurisdiction (or if the funds come from such a jurisdiction), the rates to be applied will be 35% of the net value of the sale or 31.5% of the sales price.

Indirect sales of equity participations acquired after 1 January 2018 are subject to capital gains tax provided that, at the time of sale or during the 12 preceding months:

• at least 30% of the market value of the sold shares derives from Argentina; and
• the shares being sold represent at least 10% of the equity of the foreign company.

Indirect transfers of shares within economic groups are exempt from this tax if certain conditions are met.

Foreign residents (other than those from non-cooperating jurisdictions) are exempt from capital gains tax on the sale of shares listed on stock markets authorised by the Argentine Securities Commission.

There are no change of control provisions: indirect capital gains may be taxed regardless of how many companies there are between the holding and the Argentine corporation (if complying with the requirements explained under 5.3 Capital Gains of Non-residents).

Formulas are primarily used in transfer pricing regulations to estimate an arm’s length price for transactions between related companies or with entities located in low-tax/no-tax or non-cooperative jurisdictions. However, it is important to remember these are just transfer pricing methodologies, and each company still needs to prepare its own independent financial statements for tax compliance and financial reporting purposes.

Generally, the standard applied is the “arm’s length transaction”. In addition, the deduction will only be allowed once the payments are effectively made (on a receipt basis). This latter rule also applies to payments to beneficiaries located in low- or no-tax jurisdictions, or in non-cooperating jurisdictions.

Thin-capitalisation rules apply to these transactions. As a consequence, deductions are only allowed for up to 30% of the local company’s EBITDA. Some exceptions may apply. Please see further details in 2.5 Imposed Limits on Deduction of Interest.

Argentina has a world-income taxation regime. The foreign income of local corporations is taxed at a progressive rate of up to 35%.

Resident companies are subject to corporate income tax (CIT) on a worldwide income basis – ie, they are taxed in Argentina on their local-source profits and on their foreign-source profits. However, companies can compute as tax credit similar income tax payments made abroad on foreign-source income, subject to certain limits.

Foreign income is not exempt. Even so, expenses related to exempt income are generally not deductible.

Dividends from foreign subsidiaries of local corporations are taxed at a progressive rate of up to 35%. Generally, taxes paid abroad for such distribution (or even the CIT paid by the foreign subsidiary) will be offset as a tax credit against Argentine CIT within certain limits and conditions.

Transfer pricing rules apply for determining the adequate price of the intangible transference or licence to related parties. Income derived from such transfers or licences is taxed at a progressive rate of up to 35%.

In broad terms and subject to certain conditions, Argentine controlled foreign corporation (CFC) rules include the following:

• if an Argentine resident controls a foreign trust, the income of that trust will be attributed to the Argentine resident;
• if an Argentine resident owns equity holdings in a foreign transparent (disregarded) entity, the income of such entity will be attributed to the Argentine resident; and
• if an Argentine resident owns equity holdings in a foreign non-transparent entity that has passive revenues representing 50% or more of its income, profits will be attributed to the Argentine resident if certain conditions are met.

Furthermore, profits derived by foreign branches are generally considered as a foreign source of income for the local corporation (tax credits may apply).

The Income Tax Law defines the “substance” of an affiliate as the organisation of human and material resources necessary for a company to conduct its economic activity. In addition, the law requires local residents to demonstrate that the foreign entity has legitimate economic justifications for its activities, evidenced by qualified personnel, infrastructure and adequate inventors.

Gains on the sale of shares in foreign subsidiaries by local corporations are subject to a progressive tax rate of up to 35%. Tax credit rules might be available.

Argentina has a substance-over-form rule called Realidad Económica, under which the Federal Administration of Public Income may, for tax purposes, consider the business to have a different structure from the one chosen by the parties.

This principle applies when the taxpayers use manifestly inadequate forms and legal structures that do not reflect their actual economic intention.

The Multilateral Instrument (MLI)

Argentina is also a signatory to the MLI, a multilateral convention promoted by the OECD/G20 BEPS Project in order to better address multinational tax evasion. The MLI allows its signatory countries to modify their bilateral tax treaties incorporating anti-evasion clauses such as the principal purpose test (PPT) and the limitation of benefits (LOB).

PPT

The PPT could be interpreted as having a similar application as the domestic Realidad Económica principle.

LOB

The LOB clause was drafted with the intention to avoid treaty shopping – ie, when a resident of a third country seeks to obtain the benefits of a DTT between two other countries, interposing a company or an entity. On this line, the LOB clause establishes certain tests to determine the applicability of the DTT to a company or an entity.

Argentina has incorporated the PPT and the LOB clauses into some recent DTTs that are already in force, such as the DTTs with Chile, Mexico and Brazil. Also, Argentina is currently negotiating the amendment of several DTTs pursuant to the MLI (eg, with Italy, France, the UK and the Netherlands).

The tax administration sets its audit policies according to each economic activity, and to each tax in particular. These policies are generally set at the beginning of each year and are not made public. The audits are focused on large economic groups or other businesses with significant revenues.

Regarding individuals, audits are generally conducted after the tax administration finds inconsistencies between the tax return and the information collected via various automatic information regimes, rather than following a preset cycle.

Argentina has adopted and implemented several of the Base Erosion and Profit Shifting (BEPS) recommendations issued by the OECD/G20 Inclusive Framework on BEPS. The following is a breakdown of some key areas.

Implemented Actions

• Action 4: Limiting Base Erosion Through Controlled Foreign Company (CFC) Rules. Argentina has adopted CFC rules, taxing income of foreign subsidiaries controlled by Argentine residents that is considered low-taxed or not subject to tax.
• Action 5: Countering Harmful Tax Practices More Effectively. Argentina has taken steps to address harmful tax practices identified by the OECD, such as preferential tax regimes and lack of transparency.
• Action 6: Preventing the Abuse of Treaty Benefits. Argentina implements the “principal purpose test” to prevent treaty abuse and has signed Tax Information Exchange Agreements with various countries.
• Action 13: Country-by-Country (CbC) Reporting. Argentina has fully implemented CbC reporting requirements, requiring multinational enterprises to report financial and tax information on a country-by-country basis.

Actions in Progress

• Action 1: Addressing the Tax Challenges of the Digital Economy. Argentina is actively participating in discussions and exploring options.
• Actions 8–10: Transfer Pricing Documentation and Country-by-Country (CbC) Reporting for Tax Authorities. Argentina is implementing these actions.

The general government attitude towards BEPS is highly co-operative: Argentina has passed BEPS-related legislation and has entered into various agreements with other countries in line with the BEPS recommendations. The reason behind these policies is that the current administration is trying to “open” the country to international markets and to enter the OECD as a permanent member. This is why the OECD’s Pillar One and Pillar Two are within the purview of Argentine authorities.

International tax has a very high public profile in Argentina, particularly after the “Panama Papers” leaks and various investigations into non-declared offshore accounts. These issues are likely to influence the further implementation of BEPS recommendations. The information that the AFIP receives under the CRS and FATCA agreements is also relevant. CRS and FATCA agreements provide the AFIP with a wealth of data that can be used to identify and pursue international tax evasion. This could include the promotion of a new law of asset exteriorisation and tax amnesty.

Argentina’s tax policy does not prioritise competitiveness, compared to other Latin American countries. In fact, Argentina has one of the highest effective tax rates in the region, including a progressive corporate income tax of up to 35%, dividend taxation, personal income tax of up to 35%, and local turnover taxes not seen elsewhere. Additionally, export duties add further complexity.

Despite these considerations, Argentina incorporated some BEPS principles into its legislation even before the initiative’s origin, such as thin-capitalisation rules, fiscal transparency measures and information-exchange agreements.

Argentina has terminated or reformed several double taxation treaties (DTTs) that were vulnerable to treaty abuse by taxpayers, such as those with Spain, Chile, Austria and Switzerland. This demonstrates their commitment to preventing tax evasion and avoidance.

Additionally, Argentina implements some measures that could be considered “state aid”, such as tax exemptions for specific industries or regions, or special regimes with tax benefits. These measures have mixed effects: some argue they attract investment and promote development, while others criticise their lack of transparency and potential market distortions.

Finally, Argentina participates in international tax information-exchange agreements, leading to increased transparency in tax matters.

The best policy options for addressing hybrid instruments are the specific anti-avoidance rules and the rules specifically addressing hybrid mismatch arrangements, recommended by the OECD. General anti-avoidance rules could also be useful in this matter.

Argentina has long had a substance-over-form rule called Realidad Económica, under which the Federal Administration of Public Income may disregard a certain legal structure and deem it as another one, for tax purposes. General anti-avoidance rules tend to be compliant with DTTs.

Argentina has a residence-based, worldwide income tax regime. Nevertheless, Argentine thin-capitalisation rules favour debt collection by companies rather than capital contributions, because they offer interest deductibility for paid interests; however, capital contributions have no deductions for dividends. This, coupled with lower withholding taxes on treaty partners and deductions of currency losses, may make debt appealing.

Argentina has a residence-based tax regime operating on a worldwide basis, but has transparency or CFC rules that make deferral clearly more cumbersome. However, in broad terms, companies with no Argentine controlling shareholder will not be subject to this rule. CFC rules can sometimes be legally circumvented under the new rules.       

The proposed DTT LOB or anti-avoidance rules were included in DTTs even before BEPS took place (for example, in the DTT with Chile and Spain). These new clauses started to be included after the Molinos Río de la Plata case, a leading case litigated before the Supreme Court (2021), as mentioned in 4.3 Use of Treaty Country Entities by Non-treaty Country Residents.

Argentina already had complex transfer pricing legislation before BEPS. The proposed changes may add to this regime, but do not radically alter it. Intellectual property is particularly difficult to price adequately, mainly because it is hard to find a suitable comparison.

Local resolutions have not clearly defined the contribution to the value chain. However, OECD guidelines about development, enhancement, maintenance, protection and exploitation (DEMPE) functions may contribute to the analysis. If the local company develops any of these DEMPE functions, a higher income could be allocated at a local level (the analysis should be made on a case-by-case basis). This is a source of controversy in Argentina but has not yet been heavily discussed before the judiciary.

In general, the proposals for transparency and CbC reporting are favoured. As mentioned before, Argentina has already included transparency rules in its local legislation. The CbC report provides more detailed information to the tax authorities, forcing the transfer pricing reports to be more thorough and to include other intercompany transactions that would otherwise not be dealt with for these purposes.

The digital economy is always under analysis by Argentine authorities. This can be seen in the VAT legislation, which has included clauses to tax B2C businesses operating from abroad (eg, Netflix, Spotify).

Also, a new tax called the Impuesto País (Country Tax) concerns the acquisition of such services from abroad by local residents. The Country Tax applies to the acquisition of goods or services from abroad by Argentine residents, including those purchased with credit, debit or purchase cards. This tax is not limited to digital services but also applies to various imports of goods and services. The current rate is 30% for most transactions, though some exceptions exist. Initially implemented to target digital economy transactions, the tax’s scope has since been expanded.

Moreover, some provinces have already started to develop similar clauses in their turnover tax legislation.

Argentina is currently discussing the implementation of specific profit attribution rules for digital businesses. These rules would aim to ensure that a fair share of profits generated in Argentina by digital businesses with limited physical presence is taxed locally. In that sense, the country is also actively participating in ongoing international discussions regarding a global minimum corporate tax. This initiative aims to address challenges in taxing digital businesses.

There are no other provisions dealing with the taxation of offshore intellectual property that is deployed within Argentina. For the payment of royalties to foreign beneficiaries, please see the explanation in 4.1 Withholding Taxes, which could be reduced if a DTT applies.

From a transfer pricing perspective, the tax authority has ruled that if a local party that is not the owner of the intangible contributes to the value chain of such intangible, regardless of whether it pays royalties, the way in which it is remunerated should consider the functions, assets and risks involved in such contribution to the value chain.