International tax in Argentina

Foreign PEs

Article 128 of the ITL provides that PEs that belong to Argentine residents are mining, agricultural, commercial, and industrial or other kinds of establishments, organized as stable enterprises. This definition includes construction, reconstruction and assembly where the performance abroad lasts for over six months, as well as plot division for urbanization purposes and construction and transfer of ownership of real estate.

Article 129 of the ITL established the principle of separate entity accounting in order to determine the tax results of the PE. Transactions between the PE and the Argentine resident should respect the arm's length principle, according to article 130 of the ITL.

Article 132 of the ITL establishes that the tax result of foreign source of a PE will be determined in the currency of the country in which it is situated. The Argentine resident, owner of the PE, should convert the result into Argentine currency using the exchange rate in force on the closing date at the end of the fiscal year of the PE.

The results obtained by PEs belonging to Argentine residents should be assigned to their owners even though the profits may not have been remitted or credited. When the PE remits profits to Argentine residents, these should be converted into Argentine currency.

When the PE remits utilities to Argentine residents, to establish the tax result of foreign source, the Argentine resident should consider the FX arising from the difference in Argentine pesos between the profits assigned at the end of the closing year and the profits received.


Foreign subsidiaries

The tax treatment varies according to whether the foreign subsidiary is a corporation or a partnership. If it is a corporation, the Argentine resident must consider as taxable income of Argentine source the dividend distributed by the foreign corporation, unless CFC rules are applicable. The dividend must be converted into Argentine currency when it is paid or when it is made available. Therefore, no FX gains or losses arise.

If the foreign subsidiary is a partnership, the resident partner should attribute the proportion that corresponds to him/her in the tax result obtained by the partnership according to the income tax law of the jurisdiction of incorporation of the partnership, even if the profits have not yet been distributed.

In these three cases (PEs, partnerships and corporations), the result is determined in foreign currency and then converted into Argentine pesos. It may be argued that where an Argentine resident made its investment abroad through an entity, the revaluation of the capital invested abroad is not subject to income tax.
Section 142 of the ITL ruled on the redemption of shares of foreign corporations. Section 142 established the obligation to split the net worth between capital and retained earnings. Only retained earnings would be considered as a dividend subject to income tax as income of foreign source. According to section 142 the segregation between capital and retained earnings should be made in foreign currency; consequently, if Argentina devalues the peso, the devaluation would have no impact on the segregation between capital and retained earnings.