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Regulation for determination and payment of income tax relating to sale of securities by non-residents and foreign companies

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By Alfaro Abogados

On July 18, 2017, Resolution No. 4094-E of the Argentine Federal Tax Agency (Administración Federal de Ingresos Públicos or “AFIP”), was published in the Official Gazette and made effective. This new legal provision regulates the determination and payment of income tax (as a sole and definitive payment) regarding purchase and sale, exchange (SWAP) or disposition of shares, quotas, equity, participation (including participation in mutual investment funds), bonds and other securities, in cases where the seller or transferor is a non-resident or a foreign company.

That Resolution No. 4094-E (the “Resolution”) is retroactive, being applicable to transactions where the payment has been performed as from September 23, 2013. Regarding transactions closed prior to July 18, 2017, payment of the tax shall be considered timely made if performed up to the latest business day of September 2017.

The substantial impact of the Resolution is that it puts an end to a unclarity of the legal reform of 2013 that had levied transfer of shares with income tax, where it was not clear how would the income tax be withheld when both the acquiring party and the selling party were non-residents. Now, the Resolution regulates who will be the withholding agent in cases involving sales or transfers by non-residents or foreign companies.

 

The Resolution makes it necessary to take into consideration several relevant matters, among which we point out the following:

 

1) It designates withholding agents in terms such that:

 

a)      When the party acquiring shares, quotas, equity or participation (including participation in mutual investment funds), bonds and other securities is an Argentine resident, the following persons shall have to act as withholding agents as applicable in each case: (i) in case of transactions performed at stock exchange markets authorized by the Comisión Nacional de Valores (Argentine Securities and Exchange Commission), the settlement and payment agency intervening in the transaction ordered by the non-resident (or foreign company) seller shall have to act as withholding agent; and (ii) in case of transactions conducted out of any authorized stock markets, the acquiring party shall have to act as withholding agent.

 

b)      In the event the acquiring party is a non-resident or a foreign Company, such acquiring party shall bear the obligation of paying the relevant tax.

 

2) It determines the tax amount to be withheld and paid, by applying a fifteen per cent (15%) rate over a ninety per cent (90%) of the amounts paid for the acquisition of the relevant securities, or, where applicable, over the net profit determined as such pursuant to the second paragraph of Section 93 of the Income Tax Law. When the tax subject chooses to determine the net profit subject to withholding by taking into consideration the amount resulting from deducting from the gross payment/credit the expenditures incurred in Argentina for obtainment, maintenance and conservation of that gross payment/credit (as provided under the second paragraph of Section 93 of the Income Tax Law), the tax subject shall have to both inform such circumstance to the withholding agent, and provide the latter with documents evidencing the purchase and sale transactions, according to the specifications contemplated in Section 4 of the Resolution.

 

3) It regulates the procedure for payment of the tax: (a) in cases of transactions performed through stock markets authorized by the Argentine Securities and Exchange Commission or when the acquiring party is an Argentine resident or Argentine company, the provisions of AFIP General Resolutions No. 739 and 3,726 shall be applicable; and (b) in cases where the acquiring party is a non-resident or a foreign company, payment shall be performed via international wire-transfer.

 

4) It creates a reporting obligations’ regime in terms such that as from the effective date of the Resolution the board of directors/management of the Argentine company that has issued the relevant shares/ quotas shall have to demand evidence of the payment of the relevant tax as a condition for registering the transfer of shares (when involving SA type companies) or pursuing registration of the transfer of quotas –equity– at the registry of commerce (when involving SRL type companies). At the same time, the board of directors/management of the Argentine company shall have to comply with certain reporting obligations, informing the main features of the sale/transfer transaction to the AFIP

 

For further information please contact pmazer@alfarolaw.com

 

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