Special Alert: Tax Roundup: How the Argentine Tax Authority is Narrowing Exemptions and Finding Creative Ways to Tax

Profession:Negri & Teijeiro Abogados
 
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This article was first published in ARGENTINE BUSINESS LAW WATCH 1 January 17, 2003

Narrowing the Bad Debt Deduction (or How to Increase Tax Collections during a Recession)

Until recently, Argentine taxpayers could deduct bad debt write-offs from their taxable income upon a showing that the debtor was insolvent. Indeed, a recent decision, by the Argentine Federal Tax Court (Tribunal Fiscal de la Nacin) had upheld, over the tax authority's objection, a taxpayer's bad debt deduction upon "manifest" evidence of the debtor's insolvency.2 Undaunted, the Argentine government has acted legislatively to make bad-debt deductions harder to come by. Beginning with the 2002 tax year, a bad debt is deductible only if at least one of specified criteria (e.g. filing of an unsuccessful collection claim, debtor bankruptcy) has been met.3

For smaller debts, the new tax rules apply different criteria. These debts are deductible if the following three requirements are met: (i) the debt is outstanding for more than 180 days, (ii) payment has been demanded, and (iii) there is no further commercial relationship between the debtor and the creditor. The statutory meaning of "smaller" debts has yet to be defined by the Argentine tax authority.

The new regulations make it more burdensome to qualify a bad debt write-off for deduction. The mere choice between filing a hopeless collection claim or, worse, filing a proof of claim in bankruptcy, and losing a deduction raises a practical concern. Taxpayersmay no longer take the deduction based on the debtor's apparent insolvency. Given the record number of business failures suffered during the last year in Argentina, the elimination of deductions, in economic terms, is likely to be considerable.

Deca Piazza: Withholding Taxes on Technology Transfer Payments Scrutinized

The Federal Tax Court recently reviewed withholding taxes applicable to payments under technical assistance and technology transfer agreements.4 Currently, payments of technical assistance fees and technology transfer royalties to nonresidents are subject to a 21% withholding tax in Argentina, as long as the technical assistance or technology is not available in Argentina. If the assistance or technology is available in Argentina, the applicable rate steps up to 28%, though in any event remaining well below the 31.5% withholding rate generally applicable to payments to nonresidents. If one of Argentina's various income tax treaties were to apply...

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