Certain Argentine treaties (e.g., Germany, Brazil) expressly state that having a fixed place of business exclusively for advertising activities, conducting scientific investigations or other similar preparatory or auxiliary activities do not constitute a PE as long as the activities are conducted for the enterprise. In contrast, other treaties (e.g. France, Netherlands) do not contain a similar provision, but rather a general one stating that, in order to avoid the PE characterization, any activity conducted by a fixed place in the source country must always maintain its preparatory or auxiliary character.
Under domestic law, since as it was explained ITL does not provide an exhaustive PE definition, some rulings have resorted to the broad definition provided by the former assets tax (now MPIT) to resolve PE issues. MPIT law holds that a foreign enterprise having a fixed place of business through which advertising activities are conducted, as well as technical, scientific or similar activities, even if they have a preparatory or auxiliary character, would give rise to a local PE. Although the application of this broad definition of a PE to an income tax scenario is somewhat debatable, in practice the tax authorities use this definition to determine the existence of a PE in a given case.
Although not related to income tax, in the context of the value added tax (“VAT”) and qualification as exported services, the Argentine tax authorities had the opportunity to analyze whether certain promotional and marketing services performed by a local agent qualify as a preparatory or auxiliary activity of the foreign seller. In these cases, the tax authorities concluded that the activities of the local agent are not limited to the mere intermediation between the parties but also involve the performance of additional activities that, in the aggregate, configure an essential part of the foreign importer’s core business performed in the country.
Although no specific provisions are stated under treaty or domestic law, certain VAT rulings issued by the tax authority set forth that after-sale services conducted in Argentina to products introduced by foreign exporters exceed the preparatory or auxiliary character. Under this interpretation, the services form part of, and are related to the liabilities of the foreign exporter regarding the products sold in Argentina, and therefore, imply an additional step of the foreign exporter’s business in the country. Even though these rulings concerned VAT issues; the tax authority may apply a similar interpretation in determining the existence of a PE for income tax purposes.
Patterned after the UN Model Convention, certain Argentine treaties (e.g. those in force with Finland, Spain, Sweden and the UK) state that storage facilities or the maintenance of a stock of merchandise to be delivered in purchaser’s country could result in a PE for the foreign enterprise.
The treaties signed with France and Italy; also exclude from the negative list the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise for the enterprise.
Under domestic law, a foreign enterprise having storage facilities or maintaining a stock of merchandise would be deemed to have a PE pursuant to the MPIT rules (regardless of whether the merchandise is kept for storage, display or delivery). Likewise, the maintenance of a fixed place of business solely for the purpose of purchasing merchandise or gathering information would give rise to a PE.
Therefore, under the broad scope of the MPIT rules, many situations usually excluded from the PE definition under treaty law would be deemed to give rise to a PE for domestic income tax law purposes.
PE-Risk grid under domestic law
|ACTIVITY||POTENTIAL PE RISK|
|Provision of services||X|
|Secondment of personnel||X|
|Commissionaire and similar||X|
|Post-restructuring low-risk activity||X|
|Ownership, rental/operation of real estate||X|
|FORCE OF ATTRACTION||NO|
|BRANCH PROFITS TAX||YES – 7% from 2018|