Double Taxation Agreement between Switzerland and Argentina

The Double Taxation Agreement on Income and on Capital Taxes between Switzerland and Argentina (hereinafter, DTT), signed on March 20, 2014, was finally ratified.

The Argentine Congress approved the DTT in November 2014, while the process of ratification in Switzerland was completed after fulfillment of the required formalities and submission of the Swiss diplomatic note. on October 28, 2015 in Buenos Aires, at the Swiss Chamber.

The DTT substitutes the agreement signed in 1997, which had been provisionally applied by both parties and was denounced by Argentina in 2012.

According to the DTT, this agreement will enter into force on November 27, 2015 and its effects will be applicable from January 1, 2016, except for the taxes withheld at source. In the latter cases, the DTT is applicable for the 2015 fiscal year.

The DTT adopts the guidelines of the OCDE:

1. Corporate profits: a maximum withholding is not established but a mechanism for the determination and attribution of the benefits for the “permanent establishments” it is provided. The corporate profits that exceed the amount that would be agreed between independent parties could be taxable in each state, according to their internal regulations.

2. Dividend payments: the tax rates for withholding at source are maintained with the following limits: (i) 10% of the gross amount of the dividends if the beneficial owner is an entity (except for business partnerships) that holds directly at least 25% of the equity of the company that distributes/pays the dividends, or (ii) 15% of the gross amount of the dividends for the remaining cases.

3. Interest: like the previous DTT, interest could be levied at source but the tax rate shall not exceed 12% of the gross amount of the interest payment. For the amounts of interest that exceed the amount that would be agreed between independent parties, they could be taxable in each state, according to their internal regulations.

4. Royalties: they are subject to tax in the country in which they arise: Argentina acquires the power to tax royalties paid to Swiss residents. The tax rates of withholding are maintained (3% for news, 5% for copyright, 10% for the use of equipments, patents, trademark) and 15% for all of the remaining cases. For the amounts of royalties that exceed the amount that would be agreed between independent parties, they could be taxable in each state, according to their internal regulations.

5. Capital gains: the result derived from the sale of shares or securities could be taxed by the state of residency of the entities whose shares are being transferred up to the following limitations: (i) 10% of the gain if the seller holds directly at least 25% of the equity of the company; or (ii) 15% of the gain for other miscellaneous cases. Moreover, if the value of the shares that are being transferred proceeds in more than 50%, directly or indirectly, from real property, the sale could be taxable in the state of residency of the entity without any limitation, except if the entity is publicly listed/ traded or develops its activity in the abovementioned real property.

6. Assets: Argentina acquires the power to tax shares or other participations in Argentine entities that belong to Swiss residents. A clause in the DTT was introduced by which the assets from a resident of one country, located in the other country, could be taxable in the other country.

Moreover, the DTT incorporates a provision regarding exchange of information upon specific request for tax purposes. Pursuant to the Protocol to the DTT, this provision does not trigger the obligation for the countries to exchange information in an automatic or spontaneous basis.

This circumstance regarding the exclusive application upon specific request of the exchange of information provision was highlighted by the Swiss ambassador in Argentina, Hanspeter Mock, on October 28, 2015 at the Swiss Chamber of Commerce in Buenos Aires as well as by Switzerland itself in the press release issued on the same day (see www.news.admin.ch - Go-ahead given for entry into force of DTA between Switzerland and Argentina).