1. What are the main authorities responsible for enforcing taxes on corporate transactions in your jurisdiction? Who is liable.

Transcription

1 Tax on Transactions 2010/11 Country Q&A Argentina Argentina John O Farrell, Martín Yannielli and Augusto Mancinelli JP O Farrell Abogados TAX AUTHORITIES 1. What are the main authorities responsible for enforcing taxes on corporate transactions in your jurisdiction? MAIN TAXES ON CORPORATE TRANSACTIONS 3. What are the main transfer taxes and/or notaries fees potentially payable on corporate transactions? In relation to each tax/fee identified, explain briefly: The Argentinean tax system is divided into three levels: national, provincial and municipal, each one with its own tax authority, namely: National level: Public Revenues Federal Administration (Administración Federal de Ingresos Públicos (AFIP)). Provincial level: Provincial Ministry of Economy. There are 24 jurisdictions in this level (23 provinces and the Autonomous City of Buenos Aires). Each of them has its own Agency, the main function of which is to enforce and collect tax. Municipal level: Municipal Secretaries of Finance. 2. Is it possible to apply for tax clearances or obtain guidance from the tax authorities before completing a corporate transaction? If yes, provide brief details, including whether clearance or guidance is binding. Its key characteristics. What triggers it. Who is liable. The applicable rate(s). Excise tax (Impuestos Internos) Excise tax is levied on the transfer, by any title, of a particular type of goods and the rendering of some types of services. For the excise tax to be triggered, at the time of the transfer, the industrialisation or transformation of the goods must have been completed (this means the goods must be in the form in which they will be sold to the end customer), and the services must have been rendered. Generally, it is possible to apply for tax clearance from the national tax authorities before completing a transaction. A taxpayer can apply to the national tax authorities for a binding opinion on a tax provision. The usual procedure is to file an application before the branch of the AFIP where the taxpayer is registered. The note should describe, among other things, the: Transaction and parties involved. Facts of the transaction. Legal structure of the transaction. Tax treatment that the taxpayer understands to apply to the transaction (including the applicable tax rules, any relevant precedents and any additional information which is useful to support the suggested tax treatment). The national tax authority should answer the application within 90 calendar days from the filing of the application. The national tax authority s answer is binding on both the national tax authority and the taxpayer. Even when the answer only binds the parties involved, it may be considered as a precedent for other taxpayers or, in some cases, for provincial tax authorities when considering what tax treatment to apply. Some provincial and municipal tax regulations have a similar procedure but it is rarely used by taxpayers. Excise tax is paid on each transfer performed under the above conditions. If one or more parties (producer and distributors) pay the excise tax (fiscal credit), these parties are able to offset the fiscal credit against the fiscal debit. The tax burden is identifiable in each transfer, since the amount is detailed in the invoices separately from the price of the service or goods. The taxable events that trigger excise tax are: Transfer of particular electronic devices. Transfer of alcoholic beverages. Transfer of soft drinks. Transfer of luxury items. Transfer of tobacco (including cigarettes and cigars). Transfer of automobiles and ships. Rendering of cellular telephone services. Rendering of insurance services. Excise tax also covers the import of these goods. The contributors who perform the transfers are liable to collect excise tax. CROSS-BORDER HANDBOOKS 21

2 Country Q&A Argentina Tax on Transactions 2010/11 The applicable rates vary depending on the particular type of good transferred or service rendered, for example: 60% on the retail price of cigarettes. 20% on alcoholic beverages (more than 10% of the alcoholic graduation, or AbV). 10% on an automobile when its value is higher than ARS170,000 (about US$43,500). 20% on luxury items. 4% on the price of cellular telephone services. 17% on the retail price of electronic devices. The excise tax rate must be applied to the retail price adding any other tax applicable, except for VAT. Real estate transfer and mortgage must be done by public deed before an Argentine Notary Public, and registered in the corresponding provincial real estate registry. Normally, the notaries fees fluctuate between 1% and 2% of the property value and must be negotiated in advance. The register s fee is fixed. 4. What are the main corporate and/or capital gains taxes potentially payable on corporate transactions? In relation to each tax identified, explain briefly: Its key characteristics. What triggers it. Who is liable. The applicable rate(s). Stamp tax (Impuesto de sellos) Stamp tax is a provincial tax levied on transactions formalised in writing, performed inside the province s jurisdiction, or with effects that are triggered in it. If a contract is entered into in one jurisdiction but it triggers effects in more than one jurisdiction, the contributor must split the contract value in every jurisdiction and pay the stamp tax in each province in proportion to the effects triggered. To trigger the tax the written document containing the obligations must be autonomous, which means that the document itself must be sufficient to prove the existence of the agreement. To be autonomous, the document must be signed by all parties and must not depend on another document to be able to carry out the agreement. Income tax (Impuesto a las Ganancias) Income tax is a federal direct tax that applies to the incomes of both legal entities and individuals, and undivided estates. The profit generated by corporate transactions is subject to income tax, unless expressly exempted. Net profits for income tax purposes are calculated by deducting from the taxable gross annual income the related costs and expenditures. Deductible costs and expenses are those that are necessary or related to the production, generation or maintenance of the source of taxable income, such as: Organisational expenses. Despite the fact that stamp tax is often paid 50% each by each party, or in portions depending on the number of parties involved, all parties are liable to pay it. That means that if some or all of the parties do not pay the total amount of stamp tax, the tax authority can collect all the due amount from any of the other parties involved. In that case, the party that paid the total amount of stamp tax is legally entitled to collect from the other parties the portion they should have paid. The tax rates are set by each province, and usually vary from 0.5% to 20%, depending on the nature and contents of the contract. The use of reversal letters as a legal mechanism to avoid stamp tax (triggers in one or more jurisdictions) is not considered evasion, and is commonly used to perform certain transactions based on the nature of the deal involved. The reversal letter is a contractual mechanism which consists in one party sending a written offer. The written offer establishes that the offer is considered accepted if the recipient performs an individual positive action (for example, payment or delivery of goods). This means that the contractual obligation is considered perfected when the party receiving the offer performs the positive action foreseen in the written offer. The Supreme Court of Justice of Argentina has declared in several cases that the reversal letter is a legal contractual mechanism and that stamp tax cannot be levied over this mechanism. Notary s fees and register s fee In corporate transactions, a notary is used mainly to certify the signature, authority and identity of the signing parties, in which case their fees are not substantial. Salaries. Technical services fees. Resident companies are liable to income tax on every kind of income. Non-resident entities are only liable to income tax on Argentinean-sourced income, which is subject to withholding tax at a rate of 35% applied to variable assumed profit (this varies between 90% and 35% of the value of the transaction). Resident companies earnings are taxed at a rate of 35%. Despite the fact that the tax is paid by fiscal year, income tax is paid in monthly advances, based on previous years tax obligations. Presumed minimum income tax (Impuesto a la Ganancia Mínima Presunta) Presumed minimum income tax is a federal direct tax that applies to Argentine corporations and non-residents that maintain a permanent establishment in Argentina. Presumed minimum income tax is triggered on the holding of incomegenerating assets by the corporation and it is levied on the taxpayer s total income-generating assets value (with certain exceptions). The applicable rate is 1% on the total value of assets, above an aggregate amount of ARS200,000 (about US$51,000) or higher. If total assets do not exceed this value, no presumed minimum income tax is payable. Income tax paid by a corporation may be used as a tax credit against presumed minimum income tax. If the presumed minimum income tax amount to be paid is higher than the paid income tax, the corporation must pay the excess presumed minimum income tax. 22 CROSS-BORDER HANDBOOKS

3 Tax on Transactions 2010/11 Country Q&A Argentina Presumed minimum income tax paid in excess of the paid income tax can be carried forward and used as a tax credit against future income tax to be paid for the next ten years. Personal assets tax (Impuesto a los Bienes Personales) Individuals not resident in Argentina and foreign entities owning assets including stock in Argentina, are subject to personal assets tax only on their assets located in Argentina. Argentine individuals or Argentine residents are subject to personal assets tax on their worldwide assets. In principle, the tax applies when the value of the assets owned by the taxpayer at the end of the calendar year exceeds ARS305,000 (about US$78,400). Depending on the value of the total assets net of equity participations in Argentine companies, the rate varies from 0.5% to 1.25%. Non-resident individuals are subject to a fixed rate of 1.25%. VAT is paid on the value added at each stage of the transaction. The tax burden is identifiable in each stage since the amount is detailed in the invoices separately from the price of the service or goods. This tax does not have a cumulative effect, meaning that paid VAT (input VAT (crédito fiscal)) on purchasing can be credited against VAT debts (débito fiscal). The taxpayer pays monthly in advance output VAT (débito fiscal) on the total amount invoiced, offset by the amount of input VAT (crédito fiscal) invoiced to the taxpayer during the same period. If the credit for input VAT is higher than the amount of VAT due on output during any tax period, this excess can only be credited against future VAT liabilities (except for exporters, who can request a refund of input VAT paid). The seller or service provider is liable to collect VAT. The tax applicable on shares and other equity participations in Argentine companies is collected and paid by the Argentinean company on behalf of its stockholders, and the applicable rate is 0.5% of the net equity value of the company. Certain conventions for the avoidance of double tax may render this tax inapplicable in certain cases. Gross revenue tax (Impuesto sobre los Ingresos Brutos (ISIB)) Gross revenue tax is a provincial tax calculated on a company s gross income. The applicable rates are: 21%, the ordinary rate. 10.5%, when selling livestock, groceries, and when rendering certain types of services. 27%, on communication services and on the sale of gas, electricity and meter regulated water. 6. Are any other taxes potentially payable on corporate transactions? In relation to each tax identified, explain briefly: The company must develop a periodic commercial activity inside its local jurisdiction to trigger this tax and be liable to pay it. If a company develops commercial activity in the jurisdiction of two or more provinces, the company must split its income percentage between them, in order to pay tax to each province on the relevant profit generated in its jurisdiction. The rates are set by each province, and usually vary from 1% to 6%, depending on the activity. 5. What are the main value added and/or sales taxes potentially payable on corporate transactions? In relation to each tax identified, explain briefly: Its key characteristics. What triggers it. Who is liable. The applicable rate(s). Argentina has a value added tax (Impuesto al Valor Agregado) (VAT), which is a federal tax triggered by: Onerous transfer of movables. Rendering of services. The first sale of real estate by a construction firm, done within three years since completion of the building. The import of some assets or services into Argentina. Exports of movables or services are subject to a 0% rate of VAT. Its key characteristics. What triggers it. Who is liable. The applicable rate(s). Debits and credits on bank accounts tax Debits and credits on bank accounts tax (Impuesto a los Débitos y Créditos en Cuentas Bancarias, ICDCB) is a financial tax commonly known as tax on cheques (Impuesto al Cheque). It is triggered by credits to or debits on bank accounts in Argentinean financial institutions. The applicable rate is 0.6% of the gross amount of the credit or debit. Financial institutions must withhold the amount of tax to be paid, but individuals or companies are liable when a payment made in cash triggers the tax. Some payments made in cash are also covered by this tax, as set out by law (for example, it is also triggered when a transfer of value should have been made through a bank account but was not). In this case, the applicable rate is 1.2 % of the gross amount of the transfer. If the applicable rate is 0.6%, 34% of the tax paid only on the credits on bank accounts is considered as a tax credit towards income tax or minimum presumed income tax. If the applicable rate is 1.2%, 17% of the tax paid on payments made in cash is considered as a tax credit towards income tax, or minimum presumed income tax. CROSS-BORDER HANDBOOKS 23

4 Country Q&A Argentina Tax on Transactions 2010/11 All payments of an amount more than ARS1,000 (about US$261) must be carried out through a bank account (National Act Nbr 25,345). 7. In what circumstances will the taxes identified in Questions 3 to 6 be applicable to foreign companies (in other words, what presence is required to give rise to tax liability)? Gross revenue and debits and credits on bank accounts tax Gross revenue tax is not applicable to foreign companies unless they have a permanent commercial establishment in Argentina, in which case the foreign company is taxed as a local company and debits and credits on bank accounts tax applies if the foreign company has a bank account in a financial institution in Argentina (see Questions 4 and 6). Excise tax Excise tax is not applicable to foreign companies unless they have a permanent commercial establishment in Argentina, in which case the foreign company is taxed as a local company (see Question 3). DIVIDENDS 8. Is there a requirement to withhold tax on dividends or other distributions? If Income tax Argentinean-sourced income obtained by non-resident companies is subject to income tax at a general rate of 35%, to be withheld and later paid to AFIP. This rate may vary according to the presumed profit established by law, depending on the specific case, and varies between 90% and 35% (see Question 4). If the foreign company has a permanent commercial establishment in Argentina, it is considered a local company for tax purposes (the rate of 35% is applied to actual profit, and the tax is levied on income of any source). Presumed minimum income tax Presumed minimum income tax is not applicable to foreign companies unless they have a permanent establishment in Argentina, in which case the foreign company is taxed as a local company (see Question 4). Personal assets tax Foreign companies owning assets, including stock, in Argentina are subject to a personal assets tax only on their assets located in Argentina (see Question 4). The tax applicable on shares and other equity participations in Argentine companies is collected and paid by the Argentinean company on behalf of its stockholders, and the applicable rate is 0.5% on the net equity value of the company. Any other asset owned by a foreign company is subject to a fixed rate of 1.25%. Certain conventions for the avoidance of double tax may render this tax inapplicable in certain cases. The distribution of dividends by an Argentinean company is not subject to any tax as a general principle. However, if the company is distributing untaxed profits as dividends, those dividends are subject to a 35% withholding of equalization tax. In general, equalization tax is triggered when the amounts distributed as dividends exceed the taxable profits of the distributing company. SHARE ACQUISITIONS AND DISPOSALS 9. What taxes are potentially payable on a share acquisition/ share disposal? The sale or transfer of shares or quotas of companies incorporated in Argentina, by Argentine or foreign individuals or companies, is not subject to income tax or capital gain tax in Argentina. Only a share or quotas sale or transfer by local companies is subject to income tax, and the tax rate is 35% of the profits (see Question 4). In general, the profit is determined by the difference between the price of acquisition or cost of incorporation and the price of sale. If the sale or transfer generates a tax loss, this can only be applied to profits incurred in the sale or transfer of shares or quotas, within the statute of limitation of the tax loss. Also, the sale or transfer of shares or quotas of companies incorporated in Argentina can be subject to stamp tax, depending on how the transaction is structured (see Question 3). VAT VAT only applies to foreign companies if they trigger the tax by making an onerous transfer of movable assets located in Argentina, or by rendering services in their country, if the profit obtained by the application of that service is Argentinean-sourced profit (see Question 5). Stamp tax and notary and registration fees When a contract is implemented in writing and is entered into or performed in a provincial jurisdiction (including the City of Buenos Aires), the signing foreign company is subject to stamp tax at the same rate as a local taxpayer (see Question 3). When a foreign investor acquires real estate in Argentina, it is liable to pay the notary s and registration fees (see Question 3). 10. Are any exemptions or reliefs available to the liable party? If Foreign investors and Argentine individuals have preferential treatment, as share transfers by these parties are exempt from income tax (see Question 9). There is no exemption or relief specifically for Argentine companies. 11. Please set out the tax advantages and disadvantages of a share acquisition for the buyer. Advantages A share acquisition has the following advantages for the buyer: 24 CROSS-BORDER HANDBOOKS

5 Tax on Transactions 2010/11 Country Q&A Argentina Tax benefits (for example, promotional regimes and tax exceptions) may not be affected by the acquisition. The major advantage is that a share transaction is not subject to excise tax, VAT (which in some cases has an important financial cost, as it may take several years to recover the credit generated in an asset sale transaction) and gross revenue tax (see Questions 3, 4 and 5). No notary fees and probably no registration fees are triggered. Acquiring shares is less expensive, quicker and less complex than an asset acquisition. Any tax loss carry forward remains in the target company, so can be used to offset against future profits. Disadvantages A share acquisition has the following disadvantages for the buyer: The buyer takes on the target company s contingent liabilities, and the tax statute of limitation is six years. Neither the goodwill paid nor the shares can be depreciated. The buyer inherits the tax value of the assets of the target company, as there is no step up of the assets of the acquired company for tax or accounting purposes. There is no tax group system in Argentina, so there is no way to set off the cost of the debt the buyer incurs against the profits of the business of the acquired company. 12. Please set out the tax advantages and disadvantages of a share disposal for the seller. Advantages A share acquisition has the following advantages for the seller: The transaction is tax free in principle (with possible exceptions regarding stamp tax and debits and credits on bank accounts tax) if the seller is a foreign investor or Argentine individual. An asset sale is, in most cases, taxable with VAT, income tax, excise tax and gross revenue tax, as well as stamp tax and debits and credits on bank accounts tax. If there is a real estate property transfer, a notary is also needed. The contingent liabilities of the target company are transferred to the buyer (see Question 11, Disadvantages). No notary fees and probably no registration fees are triggered. Selling shares is less expensive, quicker and less complex than an asset sale. Disadvantages In a share acquisition, the buyer does not normally pay extra (or if it does, it will not be the full amount) for any tax loss carry forward of the target company, nor to the VAT credit that will be recovered after a year of the closing date of the acquisition. 13. What transaction structures (if any) are commonly used to Generally, there are no specific structures to minimise the tax burden, as many transactions are tax free and there is no tax group regime in Argentina (see Questions 9 and 11). However, in specific circumstances, when the parties belong to the same economic group, transactions, mergers, demergers and acquisitions between them are non-taxable with income tax, VAT, and in some jurisdictions gross revenue tax. In these circumstances, tax attributes and carried forward losses can be transferred to the buyer (see Question 20). ASSET ACQUISITIONS AND DISPOSALS 14. What taxes are potentially payable on an asset acquisition/ asset disposal? Asset sale transactions are subject to several taxes, including the following: Income tax. This is levied on the transaction profits (see Questions 4 and 7). Capital gains can benefit from the reinvestment deduction, or be exempt if the transaction takes place in the same economic group (see Questions 15). VAT. The sale of movable assets located in Argentina is taxed with VAT (see Questions Question 5 and 7). The transaction may be exempt if the transfer takes place in the same economic group (see Questions 15). Gross revenue tax. This is applied to the gross income generated by the transfer of most of the assets (see Questions 4 and 13). Some jurisdictions apply an exemption to the transfer of certain assets (for example, the Province of Buenos Aires exempts the transfer of fixed assets), or if the transfer takes place in the same economic group (see Question 15). Stamp tax. If the asset acquisition or disposal is carried out by signing a contract that fulfills the requirements of a taxable event, stamp tax applies to the transaction (see Questions 3 and 7). The asset acquisition/disposal may be exempt if the transfer takes place in the same economic group (see Question 15). 15. Are any exemptions or reliefs available to the liable party? If The two main exemptions or reliefs available are: The seller can benefit from a tax deferral on the profit if he reinvests the price in a capital asset replacement. In specific circumstances, the transfer of assets in the same economic group are non-taxable with income tax, VAT, and in some jurisdictions gross revenue tax (see Question 20). CROSS-BORDER HANDBOOKS 25

6 Country Q&A Argentina Tax on Transactions 2010/ Please set out the tax advantages and disadvantages of an asset acquisition for the buyer. Advantages An asset acquisition has the following advantages for the buyer: Depreciation of the fixed assets is available, at the refreshed value. There is no transfer of contingent liabilities to the buyer. National tax contingencies can be set aside if a special procedure is followed, which includes prior notification to the tax authorities to grant the authority a 90-day period to notify any tax liability. It can deduct interest charges on debt financing directly. Disadvantages An asset acquisition has the following disadvantages for the buyer: The buyer cannot amortise goodwill. VAT is levied on most asset disposals. In contrast with share acquisitions, the buyer has to bear the cost increase of the transaction and the financial cost incurred to recover the VAT credit. The transaction is probably subject to stamp tax. Tax benefits (for example, promotional regimes and tax exemptions) of the seller may not be available nor transferred to the buyer. Normally an asset sale is more expensive and complex than a share acquisition. If there is a real estate property transfer, a notary is also needed. Contingent liabilities are not transferred to the buyer. Normally, an asset sale is more expensive and complex than a share acquisition. 18. What transaction structures (if any) are commonly used to Many asset-related transactions are implemented as share transactions, due to the different tax treatment applicable to them. If the acquisition involves only one out of several lines of business carried out by the seller, an option would be to first transfer an amount of shares (of the company that carries out the lines of business), equal to the value of the business that the buyer wants to acquire, and then demerge the line of business from the company in a tax free reorganisation (see Questions 25 to 27). LEGAL MERGERS 19. What taxes are potentially payable on a legal merger? A legal merger is subject to the same taxes as an asset sale transaction, namely stamp tax, excise tax, income tax, gross revenue tax, VAT and debits and credits in bank accounts tax (see Questions 3 to 6). However, if it can be structured as a tax free reorganisation, the transaction is not subject to income tax and VAT. Some provincial jurisdictions also grant an exemption for tax free reorganisation from gross revenue tax and stamp tax (see Question 20). 17. Please set out the tax advantages and disadvantages of an asset disposal for the seller. 20. Are any exemptions or reliefs available to the liable party? If Advantages An asset acquisition has the following advantages for the seller: The seller may benefit from a tax deferral on proceeds reinvested in a capital asset replacement. Escrow agreements are rarely used in an asset sale, as few contingencies are transferred to the buyer. In some transactions, due to the amount of VAT credits and tax loss carry forward involved, there are no significant tax savings compared with a share deal. Disadvantages An asset acquisition has the following disadvantages for the seller: Income tax is levied on an asset sale, unless the proceeds are reinvested in an asset replacement. VAT applies to the sale of movable assets located in Argentina, and the sale of assets is subject to gross revenue tax. The transaction is probably subject to stamp tax, and the seller is probably liable for debits and credits on bank accounts tax on the purchase price. Excise tax applies to the sale of some movable assets located in Argentina (see Question 3). There is a special regime for tax free reorganisation (mergers, demergers and sales and transfers from one entity to another when, even though being legally independent, they constitute the same economic group), that allows for income tax and VAT neutral reorganisations. Some provincial jurisdictions also grant an exemption for tax free reorganisations from gross revenue tax and stamp tax. One of the most significant consequences of any tax free reorganisation is the transfer of corporate attributes, which includes tax carry forwards, credits, and procedural terms. To transfer cumulative tax loss carry forwards, the owners of the predecessor companies have to be the same or at least 80% the same for at least two years before the reorganisation date or since the date of incorporation, if shorter. Other tax attributes transferred are: Deductions of expenses attributed to future fiscal periods. Pending tax benefits of promotion regimes, provided the new entity complies with the requirements of these regimes. Tax value of the transferred assets. Depreciation systems. Methods of accounting used (for example, cash basis or accrual methods). Attribution of provisions whose deduction is authorised. 26 CROSS-BORDER HANDBOOKS

7 Tax on Transactions 2010/11 Country Q&A Argentina The main requirements needed for a legal merger to qualify as a tax free reorganisation are: Continuation of predecessors business. The absorbing company must continue with one or more of the businesses that were carried out by the merged company or another business related to it, for at least two years from the reorganisation date. Maintenance of equity. The owner(s) of the merged company(ies) must maintain, for at least two years from the reorganisation date, a minimum amount of equity in the capital of the absorbing company, according to requirements set out by regulations. This rule makes reference to the equity amount rather than a percentage of it. Therefore, it is only required to maintain the nominal capital amount resulting from the merger, which cannot be lower than 80% of the nominal capital amount they had in the capital of the absorbed company. Ongoing business. Reorganised companies must be doing business as at the reorganisation date, or if they have ceased doing business, the ceasing of business must have occurred within the 18 months preceding the reorganisation date. Prior identical or related business. The companies must have developed the same or a related business during the 12 months preceding the reorganisation date or ceasing of business, if the ceasing of business has occurred within the 18 months before the reorganisation date. Notification to the tax authorities within 180 days from the reorganisation date. an ordinary company. UTEs are not subject to income tax. The profits or losses are distributed to the associated companies, will include the results of the UTE in their income tax return. The establishment of an UTE may be taxed with stamp tax (see Questions 3 to 6). Companies co-operation group (ACE) An ACE (Agrupación de Colaboración Empresaria) is an agreement between a group of companies to help each other develop their industrial and commercial activities. The trend is for ACEs to become a permanent agreement. These entities have the same tax treatment as UTEs, and also have to be registered at AFIP (see above, Temporary union of undertakings (UTE)). 23. Are any exemptions or reliefs available to the liable party? If There are no specific exemptions or reliefs. However, general exemptions or reliefs apply to UTEs and ACEs. 24. What transaction structures (if any) are commonly used to Generally, there are no specific structures to minimise the tax burden. COMPANY REORGANISATIONS 21. What transaction structures (if any) are commonly used to See Question 20. JOINT VENTURES 22. What taxes are potentially payable on establishing a joint venture company (JVC)? Corporate law provide for several types of legal entities that can be used as JVCs. The most common are corporations (Sociedades Anónimas, SA) and limited liabilities companies (Sociedades de Responsabilidad Limitada, SRL). There are no specific taxes established for a JVC in Argentinean law. This means that all taxes applicable to companies apply to a JVC (for example, excise tax, stamp tax, VAT, income tax, gross revenue tax and debits and credits on bank accounts tax (see Questions 3 to 6). Corporate law provide for two kinds of associations with a purpose similar to that of a JVC. These are: Temporary union of undertakings (UTE) A UTE (Unión temporal de empresas) is often used in public work construction projects and in the oil business. They have to be registered with AFIP to obtain tax personality. UTEs are established with the sole purpose of carrying out a specific task or work, after which the entity gets dissolved. VAT applies on the UTE s activities as if it were 25. What taxes are potentially payable on a company reorganisation? Income tax Income tax is levied on profits that may arise from a company reorganisation, unless it can be structured as a tax free reorganisation (see Questions 4 and 20). VAT VAT applies to those reorganisation operations that trigger it, unless it can be structured as a tax free reorganisation (see Questions 5 and 20). Stamp tax Stamp tax may apply depending on the written implementation of the contract, and in some jurisdictions an exemption may be available if it is structured as a tax free reorganisation (see Questions 3 and 20). Gross revenue tax Gross revenue tax applies to reorganisation operations that trigger the tax, except in some jurisdictions that grant an exemption if it is structured as a tax free reorganisation (see Questions 4 and 20). 26. Are any exemptions or reliefs available to the liable party? If There is a special regime for tax free reorganisations (see Question 20). CROSS-BORDER HANDBOOKS 27

8 Country Q&A Argentina Tax on Transactions 2010/ What transaction structures (if any) are commonly used to 31. What transaction structures (if any) are commonly used to See Question 20. Generally, there are no specific structures to minimise the tax burden. RESTRUCTURING AND INSOLVENCY 28. What are the key tax implications of the business insolvency and restructuring procedures in your jurisdiction? PRIVATE EQUITY FINANCED TRANSACTIONS: MBOs 32. What taxes are potentially payable on a management buyout (MBO)? There are three principal restructuring proceedings under bankruptcy law: There are no specific taxes for an MBO. The general tax rules applicable to share acquisitions apply to an MBO (see Question 9). Extrajudicial settlement plan (Acuerdo Preventivo Extrajudicial). This is an out of court agreement, by which debtor and creditors find a private solution that binds the signing parties. If the agreement is recorded with the commercial court, it binds all creditors, even those that did not sign the agreement. Preventive bankruptcy proceedings (Concurso Preventivo). Bankruptcy (Quiebra). The tax authorities become privileged creditors against the insolvent or bankrupt company. This means that their claims have to be fully paid unless the proceedings from the bankruptcy are not sufficient. 33. Are any exemptions or reliefss available to the liable party? If There are no specific exemptions or reliefs available in an MBO. General exemptions or reliefs available in share acquisitions apply to an MBO. Share acquisitions and disposals by foreign investors or Argentine individuals are exempt from any tax (see Question 10). 34. What transaction structures (if any) are commonly used to The tax treatment of transactions in a restructuring or insolvency do not differ from the general rules, as there is no specific relief applicable to restructuring or insolvency. If the restructuring or insolvency involves an asset transfer to the creditors, it is consider an asset acquisition and the general tax rules governing asset acquisitions apply (see Questions 14 to 18). If the restructuring involves a discharge of principal debt, this is considered a taxable profit of the debtor and subject to income tax (see Question 4). SHARE BUYBACKS 29. What taxes are potentially payable on a share buyback? A corporation can only buy back its own shares to cancel them or to keep them in treasury, both under certain conditions. There is no specific tax treatment for a share buyback. The transaction is treated as any other share acquisition for tax purposes (see Question 9). 30. Are any exemptions or reliefs available to the liable party? If There are no specific rules. The only exemptions or reliefs available are those for disposals made by foreign investors or Argentine individuals (see Question 10). There are no commonly used structures to minimise the tax burden. REFORM 35. Please summarise any proposals for reform that will impact on the taxation of corporate transactions. Proposals for reform that may impact on the taxation of corporate transactions are: Possible reform of the Criminal Tax Law, including making evasion of local (provincial) taxes of more than ARS100,000 (about US$25,800) a tax crime. Possible reform of the Criminal Tax Law, to increase the amount of national tax evasion from ARS100,000 of unpaid taxes to ARS1 million, for it to be considered criminal tax evasion. Debits and credits on bank accounts may be abolished. CONTRIBUTOR DETAILS John O Farrell, Martín Yannielli and Augusto Mancinelli JP O Farrell Abogados T F E ofarrellj@jpof.com.ar yanniellim@jpof.com.ar mancinellia@jpof.com.ar W 28 CROSS-BORDER HANDBOOKS

9 Our Firm is a full-service business law firm and our values are team work, respect, dedication, service excellence and entrepreneurship; since these are essential to deliver a businesssensitive insight that seeks not only to point at problems, but to solve them in a way that maximizes value for our clients. We also continually strive to gain a deeper understanding of our clients individual business needs. Our Values, your success The firm advises domestic and international clients on a daily or case basis. Special Practice Areas: Corporate and business law; M&A; agribusiness; infrastructure; real estate; tax; international commerce and customs; civil and commercial litigation; enviromental; labour and employment; insolvency proceeding; debt restructuring and bankruptcy; mediation and arbitration; communications; banking and capital markets; intellectual property, and automobile regulations. JP O Farrell is member of World Link Of Law, an international association of more than 60 law firms. Since January 2010, you can find us in our new office located at: th Av. del Libertador floor (C1001ABR) Ciudad de Buenos Aires Argentina Complete Information at