SIGNIFICANT DEVELOPMENTS
The rate of profits tax has increased to 35%, and there is a new tax on minimum notional income. New thin-capitalization rules govern the timing of deductibility of interest. New rules on transfer pricing establish six calculation methods.
TAXES ON CORPORATE INCOME
Profits tax/The rate of profits tax on net taxable business profits is 35%.
Corporations resident in Argentina are subject to tax on Argentine and foreign-source income. They are able to claim any similar taxes actually paid abroad on foreign-source income as a tax credit.
The 1998 tax reform introduced a new tax on minimum notional income. The rate is 1% on the value of fixed and current assets. Payment of this tax will be treated as payment on account of income tax chargeable during a maximum period of four years. There is also a new tax applied to interest and other financial costs deducted for tax purposes.
CORPORATE RESIDENCE
Corporate residence is determined on the basis of centers of activity and is unaffected by place of incorporation or management. Centers of activity in Argentina of non-Argentine corporations are treated as permanent establishments.
Other taxes
Value added tax/The current general rate of 21% is applied on the sales value of products and services (including professional services), with a few specific exceptions. This tax is applicable to imports; exports are tax exempt.
VAT paid on purchases, final imports, and rental of automobiles not considered as inventory and VAT derived from services relating to repair, maintenance, and use of those automobiles cannot be computed by the purchaser as a credit. The same tax treatment applies to other services such as those provided by restaurants, hotels, and garages.
The above-mentioned restrictions do not apply when the engagement of these services is aimed at the holding of conferences, congresses, conventions, or similar events directly related to the specific activity of the contracting party.
Turnover tax (gross income tax)/Each of the 24 jurisdictions into which Argentina is divided imposes a tax on gross revenues from the sale of goods and services. Most industries and exports are exempt from this tax.
Rates, rules, and assessment procedures are determined locally.
Excise tax/A wide variety of items (other than exports) is taxed at varying rates.
Tax on interest and financial costs of business loans and credits/Under the 1998 tax reform, a rate of 15% is applicable on interest paid, and other financial costs deducted for income tax purposes. The rate rises to 35% if the creditor is an individual. The mentioned rates will be decreased gradually during the year 2001 and 2002, and as of July 1, 2002, the tax will be abolished.
BRANCH INCOME
The rate of profits tax on net taxable profits from Argentine sources and from activities performed abroad by the branch is 35%.
INCOME DETERMINATION
Inventory valuation/Inventory valuation is based on the latest purchase.
Thus, LIFO may not be elected for tax purposes. Conformity between book and tax reporting is not required.
Capital gains/Capital gains and losses attract normal profits tax treatment, except that losses from the sale of shares and other equity interests may be offset only against the same type of income.
Intercompany dividends/These dividends are not included in the tax base by the recipient if distributed by an Argentine company. However, see “Withholding taxes” below; tax is to be withheld if the dividends are distributed by a foreign company.
Foreign income/Foreign income received or held undistributed abroad by resident corporations is subject to tax.
Stock dividends/These dividends are tax exempt if distributed by an Argentine company. However, see “Withholding taxes” below; tax is to be withheld if the dividends are paid by a foreign company.
DEDUCTIONS
Depreciation and depletion/Depreciation is generally computed on a straight-line basis over the technically estimated useful life of the assets or, alternatively, over their standard useful lives (e.g., machinery and equipment-10 years; surniture-10 years). Depreciation of buildings and other constructions on real estate is 2% per annum on cost (on a straight-line basis), unless it can be proved that useful life is less than 50 years.
Depreciation of automobiles whose original cost exceeds $20,000 is not deductible. Related expenses (gasoline vouchers, insurance, rentals, repairs and maintenance, etc.) are deductible up to an amount of $7,200 per car and year.
Conformity between book and tax depreciation is not required.
Profit or loss on the sale of depreciated property is determined with reference to cost less depreciation, restated for inflation as of March 1992, and is included in ordinary taxable income.
Percentage depletion is available for natural resources (mines, quarries, and woods).
Net operating losses/The availab
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