Fiscal aspects of royalty payments in Argentina

General overview on tax, customs and foreign exchange aspects of royalties payable by Argentine residents to foreign parties ©

- 2010

Income tax


General flat rate applicable to companies: 35%




Dividends not subject to tax, except equalization tax applies




Admitted deductions: all expenses incurred in obtaining, maintaining and improving the collection of taxable income (“ordinary and necessary test”)




Conflicting issues: intercompany services, cost-sharing, indirect costs and expenses reimbursement




Limits to deductions: 

deduction available upon royalty payment (exception to the accrual basis rule)



trademark royalties: 80% cap



royalties paid in consideration for technical, commercial or financial advice: caps of 3% of the sales or turnover or 5% of the investment made



transfer of technology royalties: registration with the National Institute of Industrial Property



test under the non-discrimination clauses foreseen in the double taxation agreements

©

2012 - 2009

Income tax


Transfer of technology regulations: 

Registration of the agreements for statistical purposes only



Benefits of the registration: (i) deductibility of royalty payments ; (ii) application of the lower withholding rates foreseen in the domestic income tax law; (iii) in most cases, application of the reduced withholding rates set forth in the double taxation agreements



Narrow requirements imposed in the last years: (i) technology applicable to the productive activity of the receiving company, excluding the financial, commercial, legal, marketing or sales areas and the general, unspecified or eventual needs ; (ii) technology to be determined in advance of its rendering and listed in detail in the agreement; (iii) technology transmittable by means of training sessions, manuals, guidelines, etc.; (iv) remuneration proportional to the renderings; (v) information to be provided in the application form: nature and characteristics of the renderings, envisioned method for the transmission, application of the technology to the activity of the company, benefit to be obtained by the receiving company by means of the technology, and improvement resulting from the rendering on a continued basis in case of periodic renderings



Problems in the registration proceeding and in the audits carried out by the tax authorities ©

2012 - 2009

Income tax


Withholding tax rates applied on royalties paid abroad:  Preferential withholding rates applicable for royalties paid pursuant transfer of technology agreements duly registered with the INPI are (i) 21% in case of technology not available in Argentina, and (ii) 28% in chase of technology available in Argentina.  Irrefutable presumption established by the regulations issued by the National Institute of Industrial Property, pursuant to which the royalties calculated as percentages on revenues will be considered as technology available in Argentina  General withholding rate of 31.5%

©

2012 - 2009

Income tax
Preferential withholding rates foreseen in the double taxation treaties 

Treaties currently in force: Australia, Belgium, Bolivia, Brazil, Canada, Denmark, Finland, France, Germany, Italy, Netherlands, Norway, Sweden and United Kingdom.



Treaties recently terminated; Austria, Chile, Spain and Switzerland



Average reduced withholding rate for royalty payments: 15%



Several treaties require prior registration of the agreements with the National Institute of Industrial Property



The receiving company shall obtain from the tax authorities corresponding to the rendering company a special tax certificate which shall be submitted in Argentina. This certificate shall (i) be issued following the model by the Argentine regulations; (ii) state that the rendering company complies with the requirements foreseen in the relevant treaty; (iii) bear the 1961 Hague Convention Apostille; and (iv) be renewed on an annual basis



“Most favored nation” and “non discrimination” clauses foreseen in the treaties. Problems connected to the inquiries made before the office in charge of interpreting the treaties.

©

2012 - 2009

Income tax


Transfer pricing 

TP rules applicable when an Argentine party enters into (i) business transactions with a related company located abroad, (ii) business transactions with a non-related company located in a low tax jurisdiction, or (iii) enters into imports or exports transactions with a non –related company located abroad for amounts higher than A$1,000,000



Transactions before listed are deemed not to be arm’s length, unless evidence on the contrary is provided by the Argentine taxpayer



Evidence shall be provided via certain annual and semi-annual returns containing specific information



Methods aligned with the OECD Guidelines –CUP/CUT, cost-plus, resale price, profit split, transactional net margin methods- , which shall be applied following the “best method” rule



Special statutory transfer pricing method known as the “sixth method”, intended to be applied in the case of certain triangulated commodities exports



The taxpayer shall maintain at the tax authorities’ disposal specific supporting documentation



Sanctions for lack of compliance



Compliance with the arm´s length principle is also a requirement foreseen in the double taxation treaties

©

2012 - 2009

Other taxes, customs duties and fx issues
Value Added Tax : importation of services into the country where they are effectively used or exploited
Stamp tax: problems arising from (i) the multi-jurisdictional royalty agreements, and (ii) the mechanism of celebrating royalty agreements by an offer letter
Tax on debits and credits on bank accounts: additional cost affecting royalty payments
Customs duties: problems arising from the customs value adjustments made to reflect royalty payments related to the goods being imported that the importer must pay, either directly or indirectly, as condition of sale of such goods
Foreign exchange issues: problems arising from (i) the foreign exchange restrictions imposed by the Argentine Central Bank on royalty payments, and (ii) the “de facto” restrictions resulting from the “services prior affidavit system” (known as “DJAs”) which also affects royalty payments

©

2012 - 2009

Maipú 1300, Floors 9, 10, 11, 12 and 13 (C1006ACT) Buenos Aires, Argentina Tel: (54-11) 4318-9900 - Fax: (54-11) 4318-9999 ww.allendebrea.com.ar Fernanda López Abramovich – [email protected] November 2012