Impact on Tax Matters of the Social Solidarity and Productive Reactivation Act

Below please find a brief summary of the principal tax aspects of the law No. 27,541, enacted by the Senate last Saturday, December 21, 2019, known as “Social Solidarity and Productive Reactivation Act”, as it arises from the promulgation made through Decree No. 58/2019 (with a partial veto related to aspects not addressed herein) and its publication in the supplement of the Official Gazette dated December 23, 2019:

1.- Tax regularization regime: The law establishes a tax regularization regime for debts resulting from tax, customs and social security matters accrued as of November 30, 2019 (inclusive), or from infringements committed as of the same date, and only applicable to Micro, Small and Medium Companies. The law foresees the extinction of criminal actions, the waiver of penalties arising from formal or substantial infringements, and the waiver of compensatory or punitive interests in different proportions depending on the circumstances of the case, among other benefits. The concepts incorporated into the tax regularization regime may be cancelled through offset against certain credits existing against the tax authority, cash payment (in which case a 15% reduction over the consolidated debt would be awarded) or payment plans of up to 120 installments depending on the circumstances of the case. The term to perform the incorporation into the tax regularization regime elapses on April 30, 2020 (inclusive).

2.- Employer social security contributions: The rate of the employer social security contributions corresponding to the subsystems arising from Laws No. 19,032 (Social Security National Institute for the Retired), No. 24,013 (National Employment Fund), No. 24,241 (Argentine Integrated Social Security System) and No. 24,714 (Family Allowances) is established on 20.40% for the employers of the private sector whose principal activity qualifies under the “services” or “commerce” categories and to the extent their total annual sales exceed the limits for qualifying as a “Medium Company – Second Category”, and on 18% for the rest of the employers of the private sector. The law awards the possibility to compute a given percentage of the referred employer social security contributions as a tax credit against VAT, and further establishes a monthly non-taxable minimum threshold over each workers’ salary of AR$ 7,003.68 (with particularities on certain cases) and an additional monthly discount of AR$ 10,000 over the total taxable base for those employers with a payroll including no more than 25 employees.

3.- Personal Assets Tax: The progressive rate scale ranging between 0.25% and 0.75% applicable to Argentine individuals and undivided estates is replaced by a new one ranging between 0.50% and 1.25% and with effects as of the 2019 tax period. In addition, the Executive Power is authorized to establish higher differential rates of up to 2.50% to levy assets located abroad, as well as to reduce them in case of repatriation of the product of the sale of financial assets located abroad. The rates applicable to substitute taxpayers for the holding of shares or participations in the equity of companies ruled under Law No. 19,550 and for the administration or disposition of assets belonging to foreign aliens are increased from 0.25% to 0.50% with effects as of the 2019 tax period. Furthermore, the law establishes that with effects as of the same tax period the subject of the personal assets tax will be ruled by the residence criteria on the terms foreseen in the income tax law, hence disregarding the previously applicable domicile criteria.

4.- Income tax: The reduction to 25% of the corporate income tax rate applicable to the subjects comprised within subsections a) and b) of section 73 of the income tax law (text 2019) as well as the increase to 13% of the rate applicable to dividend distributions foreseen in the second paragraph of subsection b) of section 73 of the income tax law (text 2019) and in section 97 of the same act, is suspended up to the financial years starting as from January 1, 2021. The so called “cedular tax” applicable on the Argentine sourced net income obtained by Argentine individuals and undivided estates over interests arising from term deposits (“depósitos a plazo”) made in institutions subject to the financial entities regime, public securities (“títulos públicos”), tradable securities (“obligaciones negociables”), stakes in common investment funds (“cuotapartes en fondos comunes de inversión”) and debt securities (“títulos de deuda”) of financial trusts, is abrogated as of the 2020 tax period. Furthermore, an exemption is established over interests arising from deposits in saving accounts (“cajas de ahorro”), special saving accounts (“cuentas especiales de ahorro”), term deposits (“depósitos a plazo fijo”) in Argentine pesos, and third party deposits or other forms of gathering funds from the public as determined by the Argentine Central Bank, in all cases to the extent they are made in institutions subject to the financial entities regime, whilst interests arising from deposits subject to clauses of adjustment are excluded from the exemption. The law further re-establishes the exemptions foreseen in section 36 bis of Law No. 23,576, in subsection b) of section 25 of Law No. 24,083 and in subsection b) of section 83 of Law No. 24,441. Finally, exemptions are also established as from tax period 2020 over (i) income obtained by Argentine individuals and undivided estates from the disposition of the assets foreseen in section 98 of the income tax law (text 2019) but not comprised within the first paragraph of subsection u) of section 26 of the referred norm (text 2019), and to the extent they are listed in exchange markets authorized by the CNV, and (ii) income obtained by foreign beneficiaries on the assets not comprised in the fourth paragraph of subsection u) of section 26 of the income tax law (text 2019), to the extent they do not reside in non-cooperative jurisdictions or the invested amounts do not come from non cooperative jurisdictions. Argentine individuals and undivided estates will not be subject to the so-called “cedular tax” over interests corresponding to the 2019 tax period arising from public securities (“títulos publicos”) and tradable securities (“obligaciones negociables”) to the extent they choose to affect such interests to the computable cost of the security from which they arise.

5.- The new PAIS Tax: A new levy denominated as the PAIS tax (Spanish acronym for the phrase “For an Inclusive and Supportive Argentina”) is created for a term of 5 tax periods computed as from the moment in which the law comes into force. The PAIS tax levies (a) the purchase of foreign currency made by Argentine residents for saving purposes or without other specific purpose, (b) foreign currency exchanges made by financial entities on account of the purchaser aimed at paying the acquisition of assets or services made abroad (or of services rendered in Argentina by non-resident parties) that are cancelled through the use of credit, debit or purchase cards, (c) the purchase of services rendered abroad made through Argentine travel or tourism agencies, and (d) the purchase of land, air or aquatic passenger transport services with foreign destination, to the extent that access to the MULC (Spanish acronym for the “Sole and Free Foreign Exchange Market”) is needed for cancelling the transaction. The rate of the PAIS tax is established on 30%, that will apply on the total value of the transaction in the cases foreseen in points (a) to (c) above, and over the value of the transaction net of taxes and government fees in the cases foreseen in point (d) above. The tax applies over Argentine residents that make any of the transactions foreseen in points (a) to (d) above, whilst those entities specifically indicated as such shall act as perception and liquidation agents.

6.- Tax on debits and credits: The tax rate applicable over debits arising from any form of cash extraction is duplicated. The referred increment does not apply on accounts belonging to individuals or entities qualifying as Micro or Small Companies.

7.- Internal taxes: The internal taxes regime applicable over the assets comprised in section 38 of Law No. 24,674 (including different type of vehicles, motorcycles, etc.) is modified through the establishment of new limits for exemptions and new taxable basis, as well as through the incorporation of new value categories and incremented tax rates depending on the case.

For more information, do not hesitate to contact Gastón A. Miani, Ana Do Nizza or Juan Pablo Baumann Aubone.