07.06.

2013

Argentine Governments new process to determine tax havens will have transfer pricing and other tax implications
Milton Gonzlez Malla, Ariel Becher, Pablo Baroffio and Pablo Godoy, Ernst & Young, Argentina
Argentine Government has issued a Decree that empowers Argentine Federal Tax Authorities (AFIP) to establish a new list including countries, jurisdictions, territories and tax systems which will be considered as cooperators for purposes of fiscal transparency and those not listed will now be considered as tax havens for transfer pricing and other tax treatments (such as application of Argentine CFC rules, etc) Up to last Thursday 30 May 2013, Argentine transfer pricing rules applied to transactions with foreign related parties and/or independent entities located in low or nil tax jurisdictions (tax havens). Upon the issuance of Decree 589/2013 , Argentine Government has empowered Argentine Federal Tax Authorities (AFIP) to establish a new list including countries, jurisdictions, territories and tax systems which will be considered as cooperators for purposes of fiscal transparency and those not listed will now be considered as tax havens. The new Decree establishes that any reference in the Income Tax Law to tax havens shall now mean jurisdictions that do not qualify as cooperators for purposes of fiscal transparency. The countries or jurisdictions considered as cooperators will be those that have signed treaties for the avoidance of double taxation (tax treaties) or tax information exchange agreements, to the extent that effective exchange of information is actually achieved. The qualification as cooperator will cease whenever a treaty or agreement is terminated, or the effective exchange of information is not accomplished. It is important to mention that Argentina will consider as cooperators not only the jurisdictions with whom treaties and agreements are in force, but also those that have initiated negotiations with Argentina to sign a tax information exchange agreement or a tax treaty for the avoidance of double taxation, with a broad clause for the exchange of information. Tax treaties and exchange of information agreements will have to comply, to the extent possible, with the international standards adopted by the Global Forum on Transparency and Exchange of Information for Tax Purposes. Therefore, it is essential that the jurisdiction with whom such tax treaties/ exchange of information agreements is signed should not invoke internal rules of their jurisdiction or banking/ trading regulation relating to secrecy when information is requested by Argentina. The AFIP will establish the required parameters to verify the existence or not of an effective exchange of information, and the necessary conditions to initiate negotiations to enter into a tax treaty or an exchange of information agreement with Argentina. The modifications introduced by Decree 589/2013 have an essential impact on certain regulations included in the Income Tax Law and the Tax Procedural Law. Certain specific tax treatments apply to transactions performed with individuals or entities located in jurisdictions considered as tax havens. For example: 1. Application of Argentine transfer pricing regulations to transactions with parties located in tax havens (analysis and documentation obligations). 2. Timing limitation on the deductibility of certain expenses paid by Argentine residents. 3. Presumption of deemed unjustified wealth increase (subject to income tax and value added tax) applicable to funds entering the country from tax havens. 4. Increase of the income tax withholding rate applicable to certain interest payments made to banking institutions located in these jurisdictions. 5. Effect on the computability of foreign tax credits, under certain circumstances.
1/2

07.06.2013

6. Application of Argentine CFC rules. The dispositions contained in Decree 589/2013 will become applicable on the day the AFIP publishes the list of jurisdictions considered as cooperators for purposes of fiscal transparency. To date, the AFIP has not made the list available. It will be important to monitor the issuance of the new list by the AFIP, as changes are likely to occur in the qualification of jurisdictions given the new parameters to be taken into consideration by the tax authorities. Consequently, how the taxpayers apply the abovementioned tax rules to their specific transactions may change as well. In addition, it will not only be relevant to analyze the first list to be issued by the tax authorities, but also provided the dynamic framework established by the Decree to monitor subsequent modifications that may take place in the future, since the AFIP is commissioned to update the list based on the evaluation of the effective exchange of tax information that takes place with the different jurisdictions. Authors: Milton Gonzlez Malla is a Partner at Ernst & Young, Argentina. He may be contacted at: milton.gonzalez-malla@ar.ey.com. Ariel Becher is a Senior Manager of Ernst & Young, Argentina. He may be contacted at: ariel.becher@ar.ey.com. Pablo Baroffio is Manager at Ernst & Young, Argentina. He may be contacted at: pablo.baroffio@ar.ey.com. Pablo Godoy is Manager at Ernst & Young, Argentina. He may be contacted at: pablo.godoy@ar.ey.com.

2/2