In recent years, companies in Argentina have faced increasing audit activity from the tax authorities at all jurisdictional levels. International transactions are in focus, with transfer pricing and thin capitalization transactions attracting particular scrutiny. More recent tax audit activity has targeted imports and treaty shopping.

Argentine tax authorities are becoming more inclined to challenge tax-motivated transactions and structures based on ‘substance over form’. The principle is embedded in Argentina’s Tax Procedures Act, and Argentine tax authorities apply it broadly to disregard the legal form of an arrangement and impose tax based on the form or structure that best reflects the taxpayers’ actual intention.

Tax avoidance involving tax treaties has received attention. In 2011, an Argentine government commission reviewed the country’s tax treaty network to determine whether there was potential for abuse. The following year, Argentina unilaterally terminated its tax treaties with Switzerland, Spain and Chile, mainly to eliminate the Argentine wealth tax exemption and to address perceived potential for abuse regarding withholding taxes on royalties, inappropriate use of conduit companies and other areas, depending on the treaty.

Argentina recently signed new treaties with:

• Spain (in force retroactively as of 1 January 2013)
• Switzerland (in force as of 1 January 2015 for withholding taxes and 1 January 2016 for other articles and Article 25)
• Chile (in force as of 1 January 2017)
• Mexico (signed and expected to enter in force as of 1 January 2018; notification from Mexico is pending).

In addition to eliminating the potential for abuse, these treaties incorporate the current international standard on the automatic exchange of tax information.

Tax reform proposals were introduced during 2016 and at the beginning of 2017. Among other measures, the following have been enacted:

• tax amnesty and voluntary disclosure regime for local residents
• repeal of the 10 percent withholding tax on dividends paid to non-resident investors
• elimination of the minimum presumed income tax in 2019
• update of the income tax thresholds and rates for individuals
• reduction of the wealth tax burden (its repeal is being analyzed for 2019 and later years).

Further, Argentina has signed the global agreements on the automatic exchange of information and the common reporting standard. As a result, the Argentine tax authority (AFIP) will obtain information about individuals and entitiesresiding in Argentina who have opened accounts at financial institutions located abroad. Such information will include account balances or value as of 31 December each year, and, in some cases, amounts of interest, dividends and other yields. identification and tax residency data of account holders or managers must be provided as well.

The AFIP will exchange this data with 55 states starting in 2017, and, in 2018, with another 40 states, or 95 states in total.

Finally, the software industry, the mining activity and the generation of renewable energies are being highly promoted.

Argentina has replaced its black list of tax havens with a white list of ‘cooperative’ countries, for transparency purposes. A 2013 decree³ established that, for all purposes of Argentine income tax law and regulations, any reference to ‘jurisdictions with low or null taxation’ is understood to refer to jurisdictions not considered ‘cooperative for the purposes of tax transparency’.

Cooperative jurisdictions are those that have entered into or are negotiating a tax treaty or exchange of information agreement with Argentina. Accordingly, countries and territories that are not on the white list are considered countries with low tax or no taxation. The white list is periodically updated and posted on the Argentine tax authorities’ website.³

The income tax law also sets out special provisions for transactions between Argentine taxpayers and parties in non- cooperative countries (formerly ‘tax havens’). These include:

• Argentine CFC rules
• non-deductibility of certain expenses until they are effectively paid
• increased withholding rates on interests
• application of Argentina’s transfer pricing regime.

In addition, Argentine procedural tax law deems amounts received by a local party from a non-cooperative jurisdiction to be an increase in assets not justified by the local party. The law therefore subjects the local party to income tax and value added tax (VAT) on a taxable base of 110 percent.

In January 2014, Argentina’s tax administration established a withholding regime for the export of goods where the final destination is different from the buyer’s country of residence.⁴ This rule relates to transfer pricing and aims to address some harmful practices that affect Argentine taxation. The tax applies at the rate of 0.5 percent on the value used for customs duties and at 2 percent on the customs value used for exports billed to non-cooperative jurisdictions.

Argentine tax authorities are also gathering more information concerning taxpayers’ transactions with related parties located in Argentina or abroad. In 2013, Argentina issued new tax information reporting requirements. Among other things, this guidance introduced a new system for registering contracts entered into by Argentine taxpayers with foreign entities and for reporting certain financial statements.⁵ The rule applies to specific types of entities or investment vehicles conducting business operations in Argentina that involve cross-border transactions, effective 3 January 2014.

Given the Argentine tax authorities’ focus on substance over form, foreign companies doing business there should be sure to have a sound, well-documented business purpose for their business structures and transactions. In many litigated tax disputes that have reached the country’s Supreme Court, taxpayers that have been able to demonstrate the business substance of their arrangements have been more likely to achieve a favorable outcome.