Under Argentine domestic and treaty law, the available method to avoid double taxation is the foreign tax credit. The model adopted is the ordinary tax credit so that the available credit is limited to the increase in the tax liability of the Argentine taxpayer as a result of the incorporation of the foreign taxable income. There are no per country or per basket limitations. The only limitation is the amount of Argentine tax that would have applied to the foreign source income (overall limitation).
This tax credit system is supplemented with an indirect tax credit under which Argentine shareholders with direct or indirect participation in foreign companies can credit against their tax liability the pro-rata share of foreign corporate taxes applied on the foreign distributing company.
Pursuant to the Income Tax Law (ITL) regulations, dividends that Argentine residents receive from foreign corporations must be grossed up to take into account the foreign taxes paid by first- and second-tier distributing corporations.
The indirect foreign tax credit is available with respect to foreign income taxes paid by a foreign corporation and by a second-tier foreign corporation only if the following requirements are met:
- In the case of direct participation in a foreign corporation, the Argentine taxpayers must demonstrate: Argentine residency, ownership of at least 25% of the shares of all classes issued by the foreign corporation, effective payment of the foreign corporate income taxes, and payment of the foreign corporate income taxes by the deadline to file the Argentine income tax return for the taxable year in which the dividends are received. Otherwise, the foreign tax credit will be available in the taxable year in which the taxes are paid; and
- In the case of indirect participation, in addition to the requirements mentioned above, the Argentine taxpayers must demonstrate: interest in the first-tier foreign corporation of at least 15% of the capital of the second-tier foreign corporation during the taxable year prior to the dividend distribution and until such distribution occurs; the first-tier foreign corporation must not be incorporated in “non-cooperative jurisdiction” (see Sec. 13.5.).