Main aspects introduced by the Social Solidarity and Productive Reactivation Law in the framework of the public emergency

On December 23, 2019, Law No. 27,541 on Social Solidarity and Productive Reactivation was published in the Official Gazette. This law declares a public emergency in economic-financial, fiscal, administrative, pension, tariff, energy, health and social matters and delegates broad powers to the Executive Branch (EB) until December 31, 2020. We share its most relevant aspects.

 

Gas and energy supply

The Law empowers the EB to maintain natural gas and electricity tariffs under national jurisdiction and to renegotiate a reduction in the actual tariff burden on households, businesses and industries by 2020 for a period of 180 days.

 

Export duties

  • Export duties may be established not exceeding a rate of 33% of the taxable value or the official FOB price.
  • It is prohibited to exceed 15% for those goods that were not subject to export duties on September 2, 2018 or that had tax rate of 0%.
  • It is forbidden to exceed a tax rate of 5% for the agro-industrial products of the regional economies defined by the EB.
  • Taxable rates for industrial goods and services may not exceed 5% of the taxable base or the official FOB price.
  • Export duty rates for hydrocarbons and mining may not exceed 8% of the taxable value or the official FOB price.

 

Legal entities. Loss or reduction of capital

The Law suspends the provisions of articles 94.5 and 206 of the General Companies Law until December 31, 2020, which means that, during the emergency period, the following shall not apply: (i) the dissolution of the company due to the loss of corporate capital, and (ii) the mandatory reduction of capital when losses consume reserves and 50% of the capital.

 

Freely available reserves

The National Government is authorized to issue Treasury notes denominated in US$ for an amount of up to US$ 4,571,000,000, with a 10-year term and full amortization at maturity, which will accrue an interest rate equal to the Argentine Central Bank’s international reserves for the same period and up to a maximum of the annual LIBOR rate minus one percentage point. Interest will be paid semiannually.

 

Tax News:

1. Micro, small and medium companies / non-profit entities: A regularization regime (including payment plan) is established for debts due on November 30, 2019. The following concepts are waived:

(a) fines and penalties under Laws 11,683, 17,250, 22,161 and 22,415 that were not confirmed at the time of placement;

(b) 100% of compensatory and/or punitive interest in respect of total or partial non-payment of obligations by self-employed workers covered by the Argentine Social Security System;

(c) remaining compensatory and/or punitive interest, including those apply on fines and customs duties, in the amount exceeding the percentage established for each case (between 10% and 75% of the capital due).

The collection agents will be released from non-confirmed fines, when they act and pay the omitted obligations.

The adherence to the regime will imply the suspension of tax and customs criminal actions and the interruption of the criminal prescription.  The total payment will produce the extinction of the criminal action.

The Argentine Tax Authority (AFIP, for its acronym in Spanish) will issue complementary regulations to implement the aforementioned regularization regime.

 

2. Formalization of the economy: The new Law empowers AFIP to establish a system of refunds for final costumers and incentives for small taxpayers who sell personal property or provide services, among others, giving priority to the most vulnerable sectors.

 

3. Employer’s contributions: Decrees 814/2001 and 1009/2001 and Article 173 of Law 27.430 are repealed and the following percentages applicable to employer’s contributions are set:

  •  20.40% for “services” and “trade” activities as long as their total annual sales exceed the limits for classification as medium sized companies tier 2.
  • 18% for all other employers.

The employer’s contribution may be used as a tax credit against VAT under specific parameters.

 

4. Tax adjustment for inflation: The apportionment of the effects of the tax adjustment inflation is extended, if it can be applied, from 3 to 6 fiscal periods equally, replacing Article 194 of the Income Tax Law.

 

5. Personal assets tax: The new law increases the implication of this tax and modifies the applicable scale’s rate (from 0.5% to 1.25%). It also empowers the EB, until December 31, 2020, to set differential rates up to 100% higher than those established in the standard scale for assets located abroad and to reduce them in the case of financial assets, in view of the repatriation of the proceeds of their realization.

In the case of companies that pay this tax on behalf of their shareholders, the withholding tax rate is increased to 0.50% as from fiscal year 2019.

Likewise, the applicable rate is increased to 0.50% to assets located in the country belonging to non-residents subjects, with application from fiscal year 2019.

With regard to financial income, fixed-term deposits in national currency, public securities, tradable securities, among others, are exempted.

 

6. Tax for an inclusive and solidary Argentina (impuesto para una Argentina inclusiva y solidaria [PAIS]): The Law establishes the “PAIS” tax with a 30% rate applicable for the term of 5 fiscal periods on the following operations:

a) 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) foreign currency exchanges for payment of services rendered by non-residents parties;

d) acquisitions of services rendered abroad; and

e) acquisitions of air or aquatic passenger transport services;

This tax does not include entities of public nature.

Expenses related to public health, education, investigation, fire extinguishing and civil protection are exempted.

 

7. Tax on debits and credits: Companies -excluding micro, small and medium companies- must pay an additional 0.6% in the case of cash withdrawals from their current bank accounts.

 

8. Income tax: The entry into force of the corporate Income tax rate of 25%, as well as the 13% rate applicable to dividend distributions is extended for one year. Thus, the rates of 30% and 7%, respectively, are maintained.

 

9. Customs Code: Until December 31, 2020, the statistical rate of the Customs Code applicable is set at 3% to final destinations of imports for consumption and to temporary import suspensions.

 

10. Internal taxes: Differential rates are arranged with increases in some goods between 14% and 40% – effective-.