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Argentina: Tax rules for permanent establishment, foreign stock transfers, thin capitalization, other provisions

Argentina: Tax rules for permanent establishment

The Argentine government on 9 December 2019 issued a decree (no. 862/19) that provides updated references to the income tax law (reflecting changes since 1997) and includes new tax regulations concerning certain items including the following.

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Certain transfers of stock or assets in Argentina

The 2017 tax reform law introduced rules concerning the taxation of “indirect” transfers or sales of participations, stocks, and assets in Argentina. The measures in the new decree clarify that there is an exclusion from this taxation for transfers of legal entities made between members of the same economic group, provided that the foreign legal entity acquiring the participation, stock or asset in Argentina did so before 30 December 2017. 


Dependent commissioners or intermediaries

The 2017 tax reform law introduced the concept of “permanent establishment” that generally is in line with the definition provided by the Organisation for Economic Cooperation and Development (OECD) and other models. Under this provision, a foreign entity simply conducting business in Argentina through agents, brokers or independent commission agents does create a permanent establishment in Argentina. Nevertheless, Article 22 of the income tax law (as amended) establishes that “intermediaries” that operate fully or principally on the behalf of related foreign entities are not independent. The new decree clarifies that this assumption occurs when the domestic intermediary obtains more than 75% of its gross income from operations with foreign related parties.


Non-cooperative jurisdictions

Argentina, Brazil Paraguay, Uruguay, and Venezuela comprise the Mercosur trading block, and five countries—Bolivia, Chile, Colombia, Ecuador, and Peru—have associate member status. The decree provides that with respect to the Mercosur trading block, one country (Paraguay) and an associate country (Bolivia) are identified as “non-cooperative” jurisdictions. Three other Latin America are also listed as non-cooperative:  Cuba, Nicaragua, and Honduras.  


Exemption on capital gains of sales of foreign stock

An exemption from capital gains taxation is provided with respect to gains realized on the disposal of foreign stock, subject to certain requirements such as that the stock was listed and authorized by the Comisión Nacional de Valores (CNV) and that the transaction was executed in markets authorized by CNV.  


Restatement for inflation and the equalization tax

A provision in the decree is intended to clarify the withholding tax on dividends distributed with regard to profits corresponding to fiscal years prior to 2018 (e.g., an adjustment for inflation for accounting purposes).


Thin capitalization, foreign exchange differences

The decree clarifies the thin capitalization limitation for foreign exchange differences derived from intercompany cross-border loans. The limitation is 30% of earnings before interest, tax, depreciation, and amortization (EBITDA). 

 

For more information, contact a tax professional with KPMG’s Latin America Markets Tax practice or with the KPMG member firm in Argentina:

Christian Athanasoulas | + 1 (617) 988-1015 | cathanasoulas@kpmg.com

Alfonso A-Pallete | +1 (305) 913-2789 | apallete@kpmg.com

Rodolfo Canese | +(5411) 4316-5740 | rcanese@kpmg.com.ar

Violeta Lagos | +(5411) 4316-5740 | vlagos@kpmg.com.ar

The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

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