On 27 December 2018, Argentina published a Regulatory Decree 1170/2018 in the Official Journal, which entered into force on 28 December 2018. The decree prescribes policy changes to Law 27,430 of 2017, which introduced tax reform measures for 2018. The main changes by the Decree are in below:
Indirect transfers of assets by nonresidents:
The decree prescribes the taxation of indirect transfers of assets located in Argentina and indicated that transfers within the same economic group will not be taxed. The Decree requires nonresidents to meet, directly or indirectly, a participation threshold of at least 80% for two years before an indirect transfer to benefit from the “economic group” exemption. For a subsequent sale to a third party, the tax cost basis is equivalent to the cost basis of the original acquirer of those shares. The exemption will not apply if the transfer has the main purpose of achieving a tax advantage.
Tax haven policy:
In determining whether a jurisdiction is a low-tax or no-tax jurisdiction, the decree prescribes that the total tax rate imposed in that jurisdiction must be taken into account, regardless of which government unit (e.g., federal, state, municipal or city) levies the tax. The decree also prescribes that a “preferential tax regime” is one that deviates from the general regime of corporate tax in force in a jurisdiction that results in an effective rate lower than that established in the general regime.
Permanent establishment (PE) rules:
In respect of permanent establishment the decree clarifies that agents with a significant role regarding contracts are considered to create a permanent establishment, and that profits are to be allocated to a permanent establishment in respect of the functions performed, assets involved, and risk assumed.
Thin capitalization rules:
The Decree introduced a new limit on deducting interest arising from financial loans. The limit equals 30% of earnings before interest, taxes, depreciation and amortization (EBITDA) or a certain amount to be determined by the Executive Power, whichever is higher. The Decree establishes that the amount determined by the Executive Power is Argentine Pesos (ARS) 1 million. It also clarifies that the limit does not apply to interest subject to withholding tax, even when the provisions of a tax treaty (e.g., reduced rates or exemptions) apply.
CFC rules:
With respects to Controlled foreign corporation (CFC) rules, the Decree includes clarifications about concepts such as control, tax personality and substance.
Transfer pricing aspects:
- Regulations regarding the analysis of transactions between related parties, for example, guidelines for implementing transfer pricing methods and various transfer pricing documentation requirements including rules for country-by-country (CbC) reports, Local file and Master file;
- Updates on the acceptable methods and their application, including the resale price method, the cost plus method, the comparable uncontrolled price method, the profit split method, and the net margin method, as well as other methods if they required; and
- Rules relating the arm’s length price of transactions with an international intermediary involved in an import and/or export operation of goods.
