TAX NEWS - may 2010
Argentine Tax: New legislative proposal to promote shared service centers
The proposed promotional regime is aimed at granting tax benefits to companies and individuals domiciled in Argentina which are engaged in the provision of services that are rendered in the country but utilized abroad and submitted through telephone, fax, internet, television, remittance of documents, discs, tapes, mail, etc.
The services that would benefit from the regime would be: information technology, legal, accounting, consultancy, enterprise services, marketing, market research, research and development, engineering, architecture, education, media (audiovisual services), among others, although activities covered by the benefits of Law 25,922 (Software Promotion Regime) would not be eligible for the projected regime.
The tax benefits, which may be granted up to a maximum 10-year period, can be summarized as follows:
- The Argentine company that provides the exported services in Argentina (although producing Argentine-source income to the local service provider) would be allowed to claim foreign tax credits for taxes effectively paid or withheld abroad by the non-Argentine service recipients. Any excess foreign tax credit generated in any given fiscal year would be allowed (in the following 10 years) to offset the amounts owed to the Argentine tax authorities for withholdings made on payments to foreign beneficiaries in connection with the exported services.
- Expenses directly incurred in the education and training of personnel involved in the provision of the export services (with a limit of 2% of the salaries of such personnel) would be allowed as a credit on account of the income tax liability originated by such export services.
- 70% of the employer's social security contributions paid for the personnel involved in the provision of the export services would be allowed (through the corresponding mechanism) as a Bonos de crédito fiscal, a tax credit in the form of a government-issued bond that could be utilized to offset federal taxes such as income tax and value added tax, and may be transferrable (only once) to another taxpayer.
- Exemption on import duties would be applicable to certain technological equipment (to be determined by future regulations).
Companies that will render services subject to this promotional regime together with other types of services or activities would be allowed to take the benefits provided their accounting books adequately reflect the corresponding income and expenses for each activity.
Finally, it is expected that the Ministry of Economy and Production would be the application authority for the proposed regime and the beneficiaries would have to be registered in a special registry.
The proposed benefits relate to federal taxes but provincial jurisdictions would be invited to adhere and provide additional benefits. Although not mentioned in the available draft bill, press reports suggest that the tax benefits would probably be limited to an annual quota.
The proposed promotional tax regime will have to be passed by the Argentine congress in order to become law and additional regulations would have to be issued by the application authority. In any case, if passed, it would be a very attractive regime for companies already exporting services from Argentina as well as for companies that may be evaluating setting up a regional shared service center.