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Argentina Resolution on Rules for the Withholding of Tax on Financial Income Derived by Nonresidents — Orbitax Tax News & Alerts

Argentina has published General Resolution 4227 of 11 April 2018, which provides for the implementation of rules for the withholding of tax on financial income derived by nonresidents introduced by the 2018 tax reform law (Law 27.430), including interest income and gains on the disposal of securities. The Resolution entered into force on 25 April.

Withholding Tax on Interest

The resolution provides that the following are responsible for withholding/remitting tax on interest income:

  • For term deposits in financial entities, the financial entity paying the interest on the deposit is responsible;
  • For Argentine Central Bank notes (LEBAC), the entity exercising the custody function of the securities is responsible;
  • For negotiable obligations, debt securities of financial trusts and similar contracts, bonds, and other securities, the payer of the interest is responsible; and
  • For shares in mutual investment funds, the depository company or the integral placement and distribution agent, if any, is responsible.

The resolution sets out the withholding tax rates on interest income from the above in line with Decree 279/2018 of 6 April 2018, including a general rate of 5% if denominated in Argentine pesos without an adjustment clause and a 15% rate if denominated in Argentine pesos with an adjustment clause or denominated in a foreign currency. The rates apply on a presumed net profit for interest income, which is generally 100%. However, for qualifying financial institutions, the presumed net profit is 43%, resulting in effective rates of 2.15% if not including an adjustment clause and 6.45% if including an adjustment clause or denominated in a foreign currency.

Withholding Tax on Gains

The resolution provides that the following are responsible for withholding/remitting tax on gains from the disposal of securities:

  • The buyer of the securities, if resident in Argentina, except in the following cases:
    • For Argentine Central Bank Notes (LEBAC) and other securities issued through a public offering with authorization from the National Securities and Exchange Commission (unless exemption applies), the entity exercising the custody function of the securities is responsible; and
    • For shares in mutual investment funds, the depository company or the integral placement and distribution agent, if any, is responsible; and
  • If the buyer is not resident in Argentina, the foreign beneficiary's (seller's) legal representative domiciled in Argentina is responsible.

In the event a foreign beneficiary has no representative in Argentina, the beneficiary must remit the tax due themselves through an international bank transfer in U.S. dollars or Euros within ten business days following the transaction date (by midnight of the tenth day Argentina time). The amount paid must be determined based on the prevailing exchange rate on the business day preceding the payment date.

The resolution sets out the withholding tax rates on gains in line with Decree 279/2018 of 6 April 2018, including a 5% withholding tax rate on gains from the disposal securities denominated in Argentine pesos without an adjustment clause and a 15% rate on gains if denominated in Argentine pesos with an adjustment clause or denominated in a foreign currency. A 15% rate also applies on gains from the disposal of shares and certain other securities, unless benefiting from the exemption for being publically traded. The rates apply on a presumed net gain of 90%, unless the beneficiary of the income wishes to apply the rates to the actual net gain. Where the actual net gain is used, the beneficiary must inform the withholding agent or legal representative and provide the relevant documentation and working papers for the withholding calculation.

Non-Cooperative Jurisdictions

Where the beneficiary of the interest income or gains is resident in a non-cooperative jurisdiction or the funds invested come from a non-cooperative jurisdiction, the withholding tax rate is 35% on the presumed net profit or gain based on type.

Taxation of Prior Gains

The resolution provides for the payment of unpaid withholding tax on gains from the disposal of securities prior to the effective date of Law 27430 (1 January 2018), including gains derived since 23 September 2013, which is when the withholding tax on capital gains was introduced by Law No. 26893. This generally applies for resident buyers where the transaction was not carried out through a stock exchange or other authorized market, and where transactions were carried out through a stock exchange or other authorized markets and the settlement and compensation agent made the withholding without remitting. This also applies for non-resident buyers where the transaction was not carried out through a stock exchange or other authorized market, in which case payment must be made through an international bank transfer. The due date is 11 to 13 June 2018.