Global Tax Alert (News from Americas Tax Center) | 23 September 2013

Argentine tax reform on capital gains and dividends enters into force

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On 23 September 2013, Law 26,893 was published in the Argentine Official Gazette, introducing significant changes to the income tax law regarding the taxation of dividends and capital gains.

The text of the law states that the provisions contained in it will enter into force from the date of its publication in the Official Gazette, and will be applicable to taxable events that take place from such entry into force.

The main modifications introduced by the reform include:

Capital gains

Foreign beneficiaries

Before the entry into force of the reform, foreign parties (non-Argentine residents) were exempt from income tax on income derived from the sale of shares, titles, bonds and other securities (by means of Decree Nº 2,284, originally enacted in 1991). The tax reform eliminated this exemption, applying a 15% income tax to net gain derived from such transactions.

For foreign beneficiaries, the net gain is presumed to be 90% of the gross sale price, which would mean an effective tax rate of 13.5% of the gross sale price (15% new capital gain rate x 90% presumed net income). Alternatively, the law allows the possibility of calculating the net income by deducting from the sale price the actual costs allowed under Argentine regulations (the way in which this would work in practice has not been clarified).

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.

Dividends

Argentine corporate taxpayers are subject to a 35% income tax on net taxable income.

Before the entry into force of the reform, dividends paid up to the amount of accumulated taxable income were not subject to dividend withholding tax. Any dividend payment exceeding the accumulated taxable income calculated in accordance with the income tax rules (plus certain adjustments) were subject to a 35% withholding tax, known as “equalization tax.”

The reform imposes a 10% dividend tax that would operate as a “sole and definitive tax” (presumably through withholdings to be performed by the distributing company). The tax on dividends applies to distributions made by Argentine entities to Argentine individuals, as well as to foreign shareholders. This tax is imposed in addition to the potential application of the 35% equalization tax in cases where dividend distributions exceed the amount of the taxable income at the corporate level.

Several clarifications and regulations should be expected, through changes to the income tax regulatory decree or new resolutions by the tax authorities. Topics, among other matters which may require further regulations, include the collection mechanism applicable for foreign beneficiaries to pay the capital gains tax, the way in which the tax cost basis will be calculated and guidance in relation to the application of dividend withholding.

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
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. CM3822