Global Tax Alert (News from Americas Tax Center) | 13 February 2014

Argentina issues additional regulations on the tax reform on capital gains and dividends

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Decree 2,334/2013, published in the Argentine Official Gazette on 10 February 2014, contains additional regulations to the tax reform on capital gains and dividends, which was introduced on 23 September 2013 through Law 26,893.

Capital gains

The reform introduced a 15% income tax on the net gain derived from the sale, exchange, barter or disposition of shares, quotas, titles, bonds and other values. For foreign beneficiaries, the net gain is presumed to be 90% of the gross sales price, which would mean an effective tax rate of 13.5% of the gross sales price (15% capital gains rate x 90% presumed net income). Alternatively, the law allows the possibility of calculating the net income by deducting from the sales price the actual costs allowed under Argentine regulations. The law states that, if both the seller and the buyer are foreign parties, the buyer will be responsible for paying the tax to the Argentine tax authorities.

The recently issued Decree, among other aspects, includes the following provisions:

  • It clarifies that the term “other values” should be understood as securities issued or grouped in series that can be commercialized in exchange markets.
  • Regarding an exemption applicable to resident individuals on shares, securities, etc. that are publicly traded, it clarifies that the trading must be performed through exchange markets duly authorized by the Argentine Securities and Exchange Commission (in Spanish, Comisión Nacional de Valores).
  • It states that, for purposes of calculating the gain obtained through the disposal of shares, securities, etc., the provisions of Section 61 of the Income Tax Law (ITL) should be observed. In this regard, the gain would be calculated by deducting the acquisition cost from the price at which the securities are transferred.
  • It clarifies that the option between the 13.5% rate on the sales price and the 15% rate on the net gain applies to any nonresident (i.e., companies and individuals).

Dividends

The reform imposed a 10% withholding tax on dividends distributed by Argentine entities to Argentine individuals as well as to foreign shareholders. This withholding tax is imposed along with the 35% equalization tax that may apply when dividend distributions exceed the amount of the taxable income at the distributing entity level.

Decree 2,334/2013 provides the following clarifications:

  • To calculate the dividend withholding tax and the equalization tax, the equalization tax should be applied first (if applicable). Then, the resulting amount of the distribution after calculation of the equalization tax is subject to the new 10% withholding tax.
  • For dividend payments in kind, the tax will be calculated considering the market value of the assets being distributed.
  • For capital redemptions, the result of the redemption could be a dividend or capital gains. A dividend is calculated as the difference between the capital reduction and the computable cost of the shares (i.e., the net equity – less accumulated profits and reserves - divided into the number of shares in circulation). Capital gains result when the shares have been acquired from a prior owner. In that case, the redemption will be understood as a sale (considering the sale price as the computable cost –already explained- and the acquisition cost as the one established by Section 61 of the ITL).

Decree 2,334/2013 also established that the provisions of Law 26,893 will apply:

  • When the payment for a transaction took place on or after 23 September 2013, for the sale of shares, quotas and other participations, titles, bonds and other securities;
  • To dividends or profits distributions that are available for disposal by the shareholder on or after 23 September 2013.

Additional clarifications and regulations are still expected (e.g., through new resolutions to be issued by the tax authorities). Topics that may require further regulations (among other matters) include the collection mechanism applicable for foreign beneficiaries to pay the capital gains tax.

For additional information with respect to this Alert, please contact the following:

Pistrelli, Henry Martin & Asociados S.R.L., Buenos Aires
  • Carlos Casanovas
    +54 11 4318 1737
    carlos.casanovas@ar.ey.com
  • Gustavo Scravaglieri
    +54 11 4510 2224
    gustavo.scravaglieri@ar.ey.com
  • Ariel Becher
    +54 11 4318 1686
    ariel.becher@ar.ey.com
  • Pablo Baroffio
    +54 11 4510 2271
    pablo.baroffio@ar.ey.com
  • Alex Saul
    +54 11 4318 1600
    alex.saul@ar.ey.com
Ernst & Young LLP, Latin American Business Center, New York
  • Alfredo Alvarez
    +1 212 773 5936
    alfredo.alvarez@ey.com
  • Pablo Wejcman
    +1 212 773 5129
    pablo.wejcman@ey.com

EYG no. CM4178