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13.1. GAAR and General Anti-Avoidance Measures

Argentine general anti-avoidance rules (“GAAR”) are contained in Articles 1 and 2 of the Tax Procedure Law (Law 11,683, as amended). Although in a different context, both Articles describe the so-called ‘economic reality principle’, a term more familiar among Argentine scholars and tax practitioners than a term ‘substance over form’ or similar terms frequently used in Anglo-Saxon jurisdictions. Article 1, Tax Procedure Law, mandates the application of the economic reality principle to the construction of tax law.  Article 2, Tax Procedure Law, provides for the application of the principle to the characterization of the acts and transactions of taxpayers, i.e., to the assessment of facts.

Article 1, Tax Procedure Law, sets forth the principle that tax provisions must be construed in accordance with their purpose and economic meaning, adding that whenever it is not possible to ascertain the meaning or the scope of application of a tax rule based on its wording or intent, the interpretation may be made resorting to private law rules, concepts and principles.

Article 2, Tax Procedure Law, in turn, directs consideration of the acts, situations, and economic relations actually performed, pursued or created by taxpayers to determine the true nature of the taxable event. Under this rule, when the legal form chosen by the taxpayer does not coincide with a structure offered or authorized by law to properly shape actual economic objectives, the chosen form may be discarded.  In lieu of the form chosen by the taxpayer, the law requires that the actual economic situation be considered within the structures provided by private law and the most natural form applied consistently with the taxpayer’s actual intention.

In general, GAAR has been applied in Argentina to both international and domestic contexts. In this regard, it has been applied to construe international tax rules and to determine the real economic substance underlying international transactions. In application of Article 2, the tax authorities and the courts re-characterize transactions involving:

  • An Argentine individual or legal entity that gives rise to domestic or foreign-source income or deductions; and
  • A foreign individual or legal entity from which Argentine-source income subject to withholding tax arises.

Application of the General Anti-Avoidance Rules over Treaty Benefits

On 2 September 2021, Argentina's Supreme Court in the case of Molinos Rio de la Plata SA, held that where a tax treaty does not contain an anti-abuse clause, the treaty should be interpreted in good faith keeping in mind the purpose of the treaty and the domestic GAAR rules can be applied to prevent the abuse of treaty benefits. In the said case, the Argentine company claimed tax exemption on dividend received from its second-tier foreign subsidiaries, through its holding company in Chile (a   platform company in Chile). The dividend income was exempt from tax in Chile under Chile’s erstwhile platform company regime, and it was exempt in Argentina under the 1976 Argentina-Chile tax treaty which provided that dividends are taxable exclusively in the source country. The tax authorities denied the exemption determining that the Chilean holding company had only been established as a conduit company to claim the platform regime and treaty benefits, and avoid paying tax in both Argentina and Chile. The exemption of dividend income in both Chile and Argentina resulted in double non-taxation which is not the purpose of the treaty as interpreted in good faith. Hence, the Supreme Court held that it was appropriate to apply the domestic GAAR rules to deny the treaty benefits, and the dividend income must be charged to tax in Argentina.

Note that the 1976 Argentina-Chile tax treaty was terminated with effect from 1 January 2013. The new 2015 tax treaty between Argentina and Chile (which generally applies from 1 January 2017), is based on the OECD Model and includes a general principal purpose test.