Corporate Tax 2010 - BMR Advisors

Negri & Teijeiro Abogados
Argentina
3 Cross-border Payments
3.3 Would there be any withholding tax on interest paid by a
local company to a non-resident
Argentina
8
3.1 Is any withholding tax imposed on dividends paid by a
locally resident company to a non-resident
Dividends distributed by Argentine companies are non-taxable
regardless of the shareholder’s residence, unless made out of
corporate earnings and profits previously untaxed at the distributing
corporation’s level, in which case a 35% withholding tax (i.e., the
equalisation tax) applies upon the distribution. This equalisation
tax applies whenever accounting profits exceed taxable income at
the corporate level.
3.2 Would there be any withholding tax on royalties paid by a
local company to a non-resident
Unless otherwise provided in a tax treaty, royalty payments to foreign
beneficiaries are subject to an effective withholding tax rate of 28%
in the case of a registered trademark, industrial know-how, and other
technology transfers. Payments made in consideration for technical
assistance, engineering and consulting services not obtainable in
Argentina are subject to a 21% effective withholding rate.
To apply the reduced withholding tax rates of 21% and 28%, the
agreements must be registered with the Argentine Trade and Patent
Office (Instituto Nacional de Producción Industrial -INPI-) which
will issue a certificate indicating, among other considerations, that
the agreement complies with the Technology Transfer Act and, if
applicable, that the technical assistance is not obtainable in the
country. Otherwise, a 31.5% effective tax rate would apply.
To clarify the registration procedure to qualify an agreement for the
21% or 28% effective rates, INPI issued Resolution P-328/05.
According to the resolution, technical assistance, consulting and
licensing of know-how --in each case if related to financing, sales and
marketing unconnected to a local “productive activity”-- do not
qualify. Agreements to acquire products, the licensing and updating of
software, the repair and maintenance of equipment (unless coupled
with training of personnel) all similarly fail, as do general services
related to the current or ordinary business of the Argentine company.
Resolution P-328 does provide a three-prong test of technical
assistance to help determine if the agreement qualifies for the 21%
effective rate. First, the technical assistance must benefit the local
company’s productive activity. Further, the transfer must be made
through recommendations, guidelines, procedures, plans, or studies.
Finally, the consideration paid for the technical assistance must be
proportional to the services performed. Resolution P-328 excludes
services related to unspecified or contingent needs, as well as those
services compensated through royalties or other fees contingent on
gross sales or similar parameters.
Licence agreements that provide the right to use a software
programme registered in Argentina as well as those allowing the
sub-licensing of software in Argentina derive Argentine source
income. An effective withholding rate of 12.25% (35% of a
presumed net income of 35%) is levied if: (i) the agreement and the
software are registered with the National Copyright Bureau
(Dirección Nacional de Derechos de Autor); (ii) profits derive from
the exploitation of the software; (iii) income tax is levied on the
authors or their successors (derechohabientes); and (iv) the
software is not developed upon demand.
If the above-mentioned requirements are not satisfied, software
royalty payments made to a foreign beneficiary would be subject to
the maximum (31.5%) withholding tax rate.
Non-resident lenders are subject to Argentine withholding tax on
interest paid by an Argentine resident. The general withholding tax
rate on interest is 35% (e.g., this rate applies to interest on intercompany
loans). However, a reduced effective rate of 15.05%
applies if payments are made: (i) by Argentine financial institutions;
or (ii) to non-resident suppliers of personal depreciable property
except automobiles (whether under a deferred compensation
acquisition or a cross-border leasing agreement provided certain
conditions are met), non-resident financial institutions, and certain
non-resident investors in privately-placed corporate bonds.
Interest paid to a non-resident financial institution will benefit from
the reduced presumed net basis to the extent the recipient meets the
following requirements: (a) it is overseen by a Central Bank or an
equivalent agency; (b) it is resident in a jurisdiction that is not a tax
haven for Argentine tax purposes, or, if so, the jurisdiction has
entered into an information exchange treaty with Argentina; and (c)
it is not exempt from providing information to its tax authorities due
to bank secrecy or other type of privacy laws.
3.4 Would relief for interest so paid be restricted by reference
to “thin capitalisation” rules
Thin capitalisation rules apply to interest payable to “foreign related
lenders” (as defined by the statute), when the Argentine borrower’s
debt-to-equity ratio exceeds 2:1. Should that be the case, the full
interest expense accrued on the debt exceeding that ratio would be
disallowed as a deduction and recharacterised as a dividend
distribution. For the thin capitalisation rules to apply, interest must
be subject to withholding tax at an effective rate of 15.05% under
domestic law (see question 3.3 above) or any other reduced tax rate
provided in a treaty. A foreign lender is considered “related” if any
of the following conditions are met: (i) it directly or indirectly
manages or controls (or is managed or controlled by) the Argentine
borrower; or (ii) it has the decision-making power to influence or
define the activity or activities of the Argentine borrower, or vice
versa, as a result of the level of equity participation, intercompany
debt financing, or functional equivalent.
3.5 If so, is there a “safe harbour” by reference to which tax
relief is assured
See question 3.4 above.
3.6 Would any such “thin capitalisation” rules extend to debt
advanced by a third party but guaranteed by a parent
company
There are no statutory rules providing the application of thin
capitalisation rules to debt advanced by a third party but guaranteed
by a parent company.
3.7 Are there any restrictions on tax relief for interest
payments by a local company to a non-resident in addition
to any thin capitalisation rules mentioned in questions
3.4-3.6 above
Argentine tax law only allows the deductibility of interest incurred
in obtaining taxable income. By resorting to this principle, the
Argentine tax authorities have limited interest from loans arranged
to acquire stock in an Argentine target corporation because
WWW.ICLG.CO.UK
ICLG TO: CORPORATE TAX 2010
© Published and reproduced with kind permission by Global Legal Group Ltd, London