Argentina: Voluntary Disclosure Program offers interesting opportunities for regularization of assets
On July 22, 2016, Argentina enacted the already expected Law 27,260, which, among others, provides for a tax amnesty program and as well as a tax moratorium for individuals, undivided estates and business entitities domiciled or resident in Argentina as per December 31, 2015. On July 28, 2016, the responsible Ministry issued the respective Regulatory Decree (Decree No 895/2016).
The tax amnesty program is valid until March 31, 2017; whether or not it may be extended is obviously not known yet.
Qualifying assets Taxpayers can regularize the possession of national or foreign currency, real estate, financial assets, either held directly or through structures like trusts or offshore companies, and any other property held in Argentina or abroad, including credits, and any kind of rights with an economic value. The respective assets have to be existent at the time of Enactment of the new law, i.e. as of July 22, 2016 or, if held through a legal entity, to the date of the last balance closed before January 1, 2016.
Individuals have the one time possibility to also declare assets held through structures or legal entities in their own name and, as a consequence, to get rid of structures not used or not appropriate anymore.
Qualifying taxpayers In the case of individuals or undivided estates, the voluntary declaration can be made also by spouses, children or grandchildren, provided that the respective assets will be held under the name of the person making the voluntary disclosure by the expiration date of the sworn statement of Income Tax for the fiscal year 2017 of the respective person. This provision opens interesting tax planning opportunities for families; however, we expect that transfer of title to the respective assets will need to be demonstrated carefully in order to meet the compliance requirements of the financial institutions where the respective assets are deposited.
Certain politically exposed persons and their families are, according to the program, excluded from the possibility to a voluntary disclosure, i.e. from tax amnesty.
Penalties The penalties or, as the law calls it, 'extra tax' due in course of the voluntary disclosure program are rather low, compared with similar programs in other jurisdictions: whereas there is a 5% penalty on the value as per July 22, 2016 on real estate, the penalty is 0% on assets with a value below ARS 305,000 and of 5% between ARS 305,000 and 800,000. If the total value of the property exceeds ARS 800,000, the penalty is 10% if the declaration is made prior to December 31, 2016, and 15% respectively, if the declaration is made between January 1, 2017 and March 31, 2017.
However, to the extent the respective assets are used to acquire certain government securities issued by the National State of Argentina or certain Argentinian infrastructure funds, no penalty or 'extra tax' will be due.
It should be noted, however, that the participation in the voluntary disclosure program does not require to repatriate foreign assets to Argentina. A taxpayer will have to consider whether or not he might want to benefit from penalty relief or rather to keep his assets outside the country.
Need for clarification Many questions are currently still open and need to be clarified in the next weeks: who exactly will be excluded from the participation in the program (the law excludes certain categories of politically exposed persons without being very precise), how exactly are the values of the assets determined (e.g. is it possible to deduct debts, for example in case of Lombard credits or mortgages, from the value of the assets?), how exactly will assets held jointly by Argentinian residents and non-residents have to be treated etc.?
Further, particularly individuals who hold their assets through trusts or other structures will need to analyze their particular tax situation in order to decide – most likely prior to the declaration – whether or not they would want to keep those structures.
According to our experience, these clarifications and considerations will take some time. The particular taxpayer should therefore become active soon, since it cannot determined right now whether the program will be extended (as other jurisdictions did) or whether it will end on March 31, 2017.