The treaty reduces withholding rates on dividend payments, interest and royalties. It also establishes permanent establishment rules. Taxpayers should determine what effect the treaty’s provisions have on their operations.
On 31 January 2021, Argentina notified the Qatar Government that it had completed the internal requirements for the entry into force of the Tax Treaty for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion With Respect to Taxes on Income and on Capital (the Treaty) signed between Argentina and Qatar.
Article 30 of the Treaty states that it will enter into force on the date of the last notification made between the parties. Because Qatar already notified Argentina on 13 July 2018, that it had complied with its internal requirements, the Treaty entered into force on 31 January 2021, which is the date of the last notification.
The Treaty provisions will take effect:
For amounts paid on or after 1 January 2022, for taxes withheld at source
For tax years beginning on or after 1 January 2022, for other taxes on income and taxes on capital.
The Treaty reduces the withholding rates on payments of dividends to 5% if the beneficiary is the Government, 10% if the beneficiary is a corporation that owns at least 25% of the entity that pays the dividends, and 15% in all other cases.
Interest is subject to a 12% withholding rate, unless it is a paid to one of the Governments, in which case the interest is not subject to withholding. Royalties are subject to a 10% withholding rate.
Capital gains tax
The Treaty imposes a 10% capital gains tax on gain upon the disposal of shares, if the participation interests are at least 25%; in all other cases, capital gains tax is 15%. The Treaty also contains a “real estate rich company” clause that addresses the taxation of capital gains realized on the transfer of shares or comparable interests that derive their value from immovable property. Under this provision, if the shares or comparable interests derived, directly or indirectly, more than 50% of their value from immovable property, the taxation right is allocated to the Contracting State in which the property is located. If one of the Governments sells shares listed in local stock exchange markets, the gain from the sale will be subject to capital gains tax of no more than 5%.
The Treaty establishes permanent establishment (PE) rules under which a company is treated as having a PE when its employees furnish services, including consultancy services, to residents in the other Contracting State for the same project for a period of, or periods aggregating, more than 6 months within any 12-month period.
Regarding the elimination of double taxation, both Argentina and Qatar apply the credit method.
The Treaty also includes an exchange-of-tax-information clause that does not limit the exchange of information to taxes covered by the Treaty.
In addition, the Treaty establishes a limitation-of-benefits provision that is similar to the principal-purpose test of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting.
The Treaty also includes a mutual agreement procedure (MAP) whereby a taxpayer of a Contracting State may present a case of taxation not in accordance with the provisions of the Treaty to the competent authorities of the Contracting State in which it is resident. The MAP request must be submitted within three years of the first notification of the action resulting in taxation not in accordance with the Treaty provisions.
Companies doing business in Argentina and Qatar should take note of the changes that the Treaty introduces and assess potential impacts to their operations and activities.
For additional information with respect to this Alert, please contact the following:
Pistrelli, Henry Martin & Asociados S.R.L., Buenos Aires
Ernst & Young LLP (United States), Latin America Business Center, New York
Ernst & Young Abogados, Latin America Business Center, Madrid
Ernst & Young LLP (United Kingdom), Latin American Business Center, London
Ernst & Young Tax Co., Latin American Business Center, Japan & Asia Pacific