The Argentine Tax Authority (AFIP) published a broadly drafted mandatory reporting regime for domestic and international tax planning arrangements in the Official Gazette on 20 October 2020. The Resolution became effective on the same day, but may require arrangements implemented from 1 January 2019 (or, in some circumstances, even before that date) to be reported.
Reporting an arrangement does not determine its tax treatment or whether AFIP would regard the arrangement as legitimate. The Resolution does, however, make clear that the information submitted could be shared with foreign jurisdictions under applicable agreements for the exchange of information.
For tax advisers, the Resolution is deeply concerning because it creates obligations that seem to go beyond, or even against, many of the laws that govern their activities. For taxpayers, it could be seen as potentially forcing self-incrimination in certain cases.
International and domestic arrangements are caught
International arrangements include “Any agreement, scheme, plan or any other action through which a taxpayer obtains tax advantages or other tax benefits involving Argentina and any other jurisdiction.” The Resolution includes a non-exhaustive list of cases that are deemed to be international tax arrangements per se:
- the use of legal entities for obtaining benefits provided by treaties to avoid double taxation, strategies adopted to avoid triggering the status of “permanent establishment”, arrangements resulting in double international non-taxation, allocation of taxable profits to one or more foreign jurisdictions, and when there is an intention to avoid compliance with any reporting regime
- the involvement of non-cooperative, or nil and low tax jurisdictions, as defined by the Income Tax Law and its regulatory decree
- the use of asymmetries in regulations of two or more jurisdictions regarding the tax treatment and/or legal status of an entity, agreement or financial instrument that results in a tax advantage or other tax benefits
- the existence of a foreign individual, undivided state, legal entity, trust, foundation or any other foreign entity with double tax residency
- when a taxpayer has rights as beneficiary, grantor, fideicommissary or trustee of a foreign trust, foreign private foundation or similar
- any other arrangement listed on AFIP's website
It seems that, in the case of international tax arrangements, the situations included in the list are only examples, so that any arrangement or situation that meets the definition established in the Resolution should also be reported. In contrast, domestic arrangements are defined as “Any agreement, scheme, plan or any other action through which a taxpayer obtains tax advantages or other tax benefits in Argentina with respect to federal taxes or reporting regimes", but the Resolution clarifies that domestic arrangements are only those included in a list to be published on the AFIP’s website.
Vague definition of "tax advantage"
The Resolution establishes that “tax advantage” shall be understood as any reduction of taxes for the taxpayers, as well as for their related parties, either directly or indirectly. Also, a breach by a taxpayer of any of the reporting regimes established by AFIP, would be considered a tax advantage.
The definition of “tax advantage” is very vague. In fact, it is not clear how to determine that a structure or a transaction involves a “reduction of taxes”: should it be compared to the most expensive alternative in terms of taxes?
The Argentine Supreme Court has consistently held that taxpayers are free to structure their transactions and businesses efficiently and are not obliged to do it in such a way to derive the highest tax burden possible; therefore, it is not clear the scope of the definition included in the Resolution.
Who must report and professional secrecy
The regime applies to the following persons:
- taxpayers involved in a tax arrangement;
- tax advisors, individuals or entities, who help, assist, advice or are involved in any activity related to the implementation of a tax planning arrangement, as long as they are directly or indirectly involved in such implementation. Moreover, tax advisors will have to comply with the reporting duty if a related, associated or connected tax advisor, implements a tax arrangement.
Each relevant person must separately comply with the reporting regime; none of them are absolved from their reporting obligation if another person has already reported the same arrange.
Tax advisors may refrain from reporting the information on the grounds of professional secrecy, in which case, they must serve notice to their clients through AFIP's website. But serving that notice through AFIP's website might, per se, involve a breach of professional secrecy obligations - and such a breach could lead to criminal sanctions. The Resolution also authorizes the taxpayer to release the tax advisors from their professional secrecy obligation, either on a case-by-case or a general basis, also through AFIP's website.
The reporting obligation: beware of the look-back!
The reporting obligation applies not only to arrangements implemented after the Resolution was published. All tax planning arrangements implemented between 1 January 2019 and 20 October 2020, or implemented before 1 January 2019 but still in effect on 20 October 2020, must be reported by 29 January 2021.
From 20 October 2020:
- domestic arrangements must be reported by the last day of the month following the month during which the end of the tax year fell in which the arrangement was implemented
- international arrangements must be reported within 10 days of their implementation
Reports must explain the tax advantages intended to be achieved by the parties involved in the arrangement or by third parties and include all relevant facts, details of the parties involved, and a thorough analysis of the applicable legislation, both national and foreign.
Obligors who do not comply with the reporting regime may be subject to, inter alia, fines set out in the Tax Procedural Law (Law No. 11.683).