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New bill proposed – taxation of capital gains and the distribution of dividends

08/30/2013 - Por Tützer, Jorge E. - Navarro, Damián H. - Domínguez, Daniel.

On August 27th, Argentine Executive Branch sent a new bill to Congress proposing milestone amendments in the income tax legislation, principally taxing certain capital gains and the distribution of dividends.

This measure aims to compensate future reduction in the federal government revenues, after the decision to grant exemptions on income tax to individual with salaries below AR$ 15 k (i.e.: decree nº 1242/13 – official gazette 28/08/13).



On August 27th, Argentine Executive Branch sent a new bill to Congress proposing milestone amendments in the income tax legislation, principally taxing certain capital gains and the distribution of dividends.

This measure aims to compensate future reduction in the federal government revenues, after the decision to grant exemptions on income tax to individual with salaries below AR$ 15 k (i.e.: decree nº 1242/13 – official gazette 28/08/13).

Capital gains on disposition of shares, bonds and securities

The bill proposes a 15% tax rate for capital gain realized by individuals on the sale of shares, bonds and other securities (except for those traded on exchange markets), which as of today are generally not subject to tax. Additionally, the bill eliminates income tax exemptions currently in force for non resident corporations and individuals.

Therefore, should the bill be finally approved (which is expected, as the governing party has majority at Congress), nearly all the transactions with shares, bonds and securities would become taxable. In a nutshell, comparing the actual situation with the amendments introduced by the new project, we find

Find below some of the principal provisions and some amendments that would require specific regulations/clarifications:
 No taxation on “Vodafone” like transactions: the new bill does not have any provision addressing “Vodafone” like structures. Therefore, sales of foreign holding corporations with assets in the country would not trigger any capital gain.
 No provision addressing transactions concluded before the entry into force of the bill: the question is therefore what would happen with those disposals occurred before the entry into force of the new legislation. According to some judicial precedents, tax amendments to income tax legislation could be applicable to transactions occurred during the same fiscal year. However, this much should be analyzed on a case by case basis.
 No provision addressing the disposal of quotas/participation on limited liability companies: as of today, only the sale of quotas by resident individuals is exempt (when not done on habitual basis). The bill does not seem to change the said tax treatment.
 No provision amending taxation of certain instruments regulated under specific legislation: no changes are introduced for instruments with specific tax treatments/benefits (i.e.: public bonds, securities publicly offered among others). Therefore disposal of these specific instruments will continue with their actual tax treatment (i.e.: exempt for individuals and non residents - art. 36 bis of the nº 23.576 Act).
 Capital gain tax rate for non residents is not clear: notwithstanding the bill seems to introduce a 15% tax rate for all these capital gains, when specifically addressing situation of non-residents, article 4 of the project refers to the tax rate determined in article 93 of the income tax legislation (i.e.: 17.5% rate applied on the gross-sale proceeds, or alternatively at the 35% rate applied on the net gain, provided that the ARS approves the adjusted basis of the asset sold.). In order to prevent future discussions Congress should clarify this point.
 No provisions addressing the procedure for taxing transactions between non-residents: enforcement by ARS could not be possible in certain situations. Therefore, some specific regulations would probably be issued to deal with these cases.

Taxation on distribution of dividends

As of today, in general dividends are not taxed in Argentina (except when received from foreign entities). If the corresponding profits were taxed at the corporate level then no income tax applies on distribution. If that is not the case, then an “equalization tax” applies (35% rate).

The new bill introduces a 10% tax (besides the equalization tax, if applicable) on dividends distributed by local entities which are referred to under article 69 a) of the income tax law (corporations, limited liabilities companies, funds, trust, among others).

Further regulations would be required to address tax treatments in head of entities receiving the dividends and the procedure to be followed in the case of distribution to non resident shareholders.

Discussion through Congress and entry into force

Executive Branch expects Congress approves the new bill before the next October. The project states that the amendments would be applicable as of the date it is published in the official gazette, but the ARS could pretend to tax transactions which have already occurred during the fiscal year.

Discussion in Congress would be followed up in view of any changes/clarifications introduced to this proposal.

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