The Income Tax Law briefly provides that a permanent establishment (PE) includes commercial, industrial, agricultural, mining or any other type of establishment organized as a stable entity and belonging to foreign entities or to individuals residing abroad.
Effective 1 January 2018, a definition of PE has been introduced into the ITL. The definition generally follows the PE definition in Argentina's tax treaties, including specific provisions regarding dependent and independent agents.
A PE has been defined as a fixed place of business in Argentina through which a non-resident performs all or part of its activity.
A PE includes:
- a management or administration office;
- a branch;
- an office;
- a factory;
- a workshop;
- a mine, an oil or gas well, a quarry or any other place related to the exploration, exploitation or extraction of natural resources including fishing activity;
- a work, a construction, a project of assembly or installation or related supervisory activities carried out in Argentina for a period exceeding six months;
- the provision of services by a non-resident in Argentina for a period exceeding six months within any period of twelve months.
A PE is also deemed to be constituted when a dependent agent carries out an activity within Argentina on behalf of a non-resident, and the agent:
- possesses and habitually exercises powers that authorize it to conclude contracts in the name of the non-resident or play a role of significance that leads to the conclusion of said contracts;
- maintains stock from which he regularly delivers goods or merchandise on behalf of the non-resident;
- assumes risks that correspond to the non-resident;
- acts as per detailed instructions or subject to the general control of the non-resident;
- exercises activities that economically correspond to the non-resident; or
- receives remuneration regardless of the result of their activities
However, the mere conduct of business in the country through brokers, commission agents or any other intermediary who enjoys an independent status does not constitute a PE in Argentina provided that they act in the usual course of their own business and are independent in their commercial or financial relations with the company.
A PE does not include the following activities to the extent that they have an auxiliary or preparatory nature:
- the use of facilities for the sole purpose of storage or exhibition of goods or merchandise belonging to the enterprise;
- the maintenance of a stock of goods or merchandise belonging to the enterprise for the sole purpose of storage or exhibition;
- the maintenance of a stock of goods or merchandise belonging to the enterprise for the sole purpose of being transformed by another enterprise;
- the maintenance of a fixed place of business for the sole purpose of buying goods or merchandise or collecting information for the enterprise;
- the maintenance of a fixed place of business with the sole purpose of carrying out for the enterprise any other activity with such character;
- the maintenance of a fixed place of business for the sole purpose of carrying out any combination of the activities mentioned in above paragraphs, provided that the activity as a whole of the fixed place of business resulting from that combination remains auxiliary or preparatory in nature.
It should be observed that under certain treaties (e.g., Canada, Denmark) if the agent’s activities are conducted exclusively --or almost exclusively-- on behalf of the foreign company, the agent would be a PE of the foreign company for which he acts. Certain other treaties (e.g., Finland, Norway, Sweden, and Netherlands) provide that exclusive agents would be constitute PEs only if the conditions made or imposed between the foreign enterprise and the agent in their commercial and financial relations differ from those which would have been made or imposed between unrelated parties.
It is worth mentioning that the authority to conclude agreements on the principal’s behalf would comprise not only situations where the agent acts in the name of the principal, but also those where the agent acts in its own name (e.g., undisclosed commissioner agreement). Although there are no precedents on point, it could be sustained that a PE would exist if the agent is engaged in all the necessary negotiation activities even when the contracts are signed by somebody else abroad.
In addition, the treaty with Spain --following a clause included in UN Model Convention-- provides that even in the case where the agent does not have such authority, the foreign enterprise will be deemed to have a PE if the agent maintains a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the foreign enterprise.
The commentaries to the UN Model Convention state that this clause has to be construed in a way that if all the sales-related activities take place outside the agent’s State and only delivery takes place there, such a situation would not lead to a PE. However, if sales-related activities (e.g., advertising and promotion) are also conducted in that State on behalf of the principal and have contributed to the sale of such goods or merchandise, a PE would exist.
Finally, there are no rules on the provision of online services. With regard to ownership or rental of real estate, in the absence of specific rules, general principles are followed. Therefore, when the management of the real estate is organized as a stable entity, it might be deemed a PE of the foreign owner.