TAX NEWS - DECEMber 2009

Argentina tax: Deadline nearing for application to benefit from investment in capital assets and infrastructure incentives

Applications to benefit from a temporary incentive program under Argentina's "Investment Promotion Law on Capital Assets and Infrastructure Works" must be submitted by 21 December 2009. The government issued regulations under the regime in June 2009 setting out the requirements for investment projects in industrial activities to qualify to bid for the incentives. There is currently no bidding process for infrastructure works – the bidding/application process applies only to investments in capital assets.

The incentive regime, which applies to investments in new capital assets and the carrying out of infrastructure projects between October 2007 and September 2010, provides for two types of benefits: accelerated depreciation on assets and a VAT credit that may be applied to other taxes (i.e. income tax) or the early refund of VAT (provided at least three VAT periods have passed from the time the investment was made). Accelerated depreciation will apply over three, four or five years for qualifying movable assets or over 50%, 60% or 70% of the estimated useful life of assets used in infrastructure works.

"Infrastructure works" for purposes of the incentives includes work that is declared critical infrastructure by the Ministry of Federal Planning or work falling into one of the following categories: (1) mining exploration or exploitation; (2) the construction of railways, ports or construction in navigable waters; (3) road works; (4) electrical power generation, transportation and/or distribution; (5) oil and gas production, transportation and/or distribution; and (vi) the construction of new oil and gas refineries and the expansion of existing refineries.

It generally will not be possible to obtain both accelerated depreciation and the VAT credit, except where the production resulting from an investment project is earmarked entirely for export or where the project relates to a "clean production plan" or a sustainable industrial reconversion project as approved by the Department of the Environment and Sustainable Growth.

The incentives are available only to corporations and individuals resident in Argentina that declare in an affidavit that the investments were made or the infrastructure projects were carried out in the relevant time period. An application to be submitted to the government by 21 December 2009 must contain, inter alia, the following information:

- Identity of the beneficiary and its financial situation;
- A description of the investment project;
- Amount of the requested tax benefit; and
- Whether the applicant is in compliance with its tax and social security obligations.

The applicant also must provide specific guarantees.

When analyzing an application, the government will consider factors such as the technical feasibility of the investment and its regional and environmental impact, whether the investment serves the public interest, the impact on net exports and whether the investment will create new jobs. The incentives will be granted by the Secretary of Industry issuing a resolution (published in the Official Bulletin), with the tax authorities subsequently opening a computerized current account specific to the benefits to be received. With respect to investments in capital assets, funds of ARS 500 million (for income tax and VAT) are available for investments by large companies and funds of ARS 300 million are available for small and medium-sized companies.