Argentina To Lower Distortive Taxes

Author:Mr Guillermo Teijeiro
Profession:Negri & Teijeiro Abogados

The Argentine Minister of Finance, Jos Luis Machinea, announced on October 23, 2000, that he and his team were drafting a tax bill aimed at reducing the impact of distortive taxes that affect the capital investment in Argentina. The tax bill was sent to Congress for debate on October 26, 2000 and it was approved unanimously by the House of Representatives on November 1, 2000. Now, it must be discussed on the Senate's floor before it is passed as law. In general, the Argentine businessmen welcomed the initiative, although they push for more reductions. The government's move is intended at reactivating the Argentine economy, which suffers its toughest recession in decades. The tax breaks to be granted relate to the tax on interest, the minimum presumed income tax, the value-added tax and the personal assets tax.

Tax On Interest

Currently, Argentine taxpayers that borrow funds from Argentine banks or issue obligaciones negociables (a tax-preferred bond) to Argentine individuals or nonresidents are subject to a 15% tax on the interest paid. This tax effectively increases the Argentine taxpayers' cost of borrowing by the rate of the tax (although such increase cannot be higher than 2.25% of the principal amount of the loan). If enacted, the tax bill would amend Title IV of the Law No. 25063 that created this tax so as to lower the tax rate to 10% effective January 1, 2001, and to 8% effective July 1, 2001, for interest payments to be made since those dates. Additionally, the amended rule would decrease the limit of the amount of tax that Argentine borrowers may be required to pay to 1.5% (1.2% since July 1, 2001) of the principal amount of the loan.

The tax bill would also incorporate a mechanism to credit the tax on interest paid against the Argentine taxpayers' Argentine income tax and minimum presumed income tax liabilities for the taxable year in which the tax on interest is paid. This mechanism, however, would only be available to a small range of taxpayers (those with Argentine bank loans not exceeding $500,000 at the end of the previous taxable year) and would be effectively limited to a $750 credit per year. Any excess credit would not be refundable to the taxpayers. If enacted, the credit could be claimed by Argentine taxpayers for those taxable years closed after December 31, 2000.

Finally, the tax bill would authorize the Argentine President to decrease the rate of this tax or to suspend its applicability under special...

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