The Argentine Executive Power Regulates Indirect Tax on Online Bets

The Tax established in 2016 by the Law is levied on bets made in Argentina through any digital platform -gambling and/or betting games developed and/or operated online-, regardless of the location of the server used to provide the service.

In December 2020, Law 27,591 amended the Law, introducing certain modifications to the Tax, particularly on the applicable tax rates.

Although the Tax was established in 2016 and amended in 2020, it had not been enforced until now by the Argentine Tax Authorities (“AFIP” after its acronym in Spanish), since the provisions regulating its implementation had not been issued.

In such sense, the recent Decree comes to regulate the Law, by determining and clarifying certain aspects related to the implementation of the Tax.

Although AFIP’s regulations on the formalities to comply with the assessment and payment of the Tax are still pending, upon the enactment of this Decree, and after more than five years of waiting, it is expected that the Tax will enter into force in a relatively short time.

Main features of the Tax under the Decree:

Taxpayer. In accordance with the Law, section 1 of the Decree ratifies that the Tax will be borne by the person placing the bet (the “User”), although in most cases the payment of the tax will take place through a tax collection mechanism in charge of the operator or the payment intermediary, as set forth in the Decree.

Tax rates. Regarding the applicable tax rates, section 5 of the Law (as amended) establishes that the general tax rate is 5% over the net value of the deposits made by the User in its betting account. Such general rate shall be reduced by 50% in the case of bets involving entities related to the exploitation of games of chance and/or bets that have genuine investments in Argentina related to the gaming industry. In addition, the rate shall be increased to: (i) 10% in the case of bets where either directly or indirectly a foreign person or entity is involved, or to (ii) 15% in the case of bets where either directly or indirectly a foreign person or entity is involved and such foreign person/entity is located or incorporated in a “non-cooperative jurisdiction” or in a “nil or low-tax jurisdiction”, in accordance with the definitions provided by the Argentine Income Tax Law (the “ITL”).

The Decree makes certain clarifications and introduces new provisions that were not included in the Law. Hence, pursuant to the Decree, the following tax rates will apply:

1. 5% if the online bet is organized by Argentine resident operators enrolled in the Argentine Registry for the Online Control of the Betting System (the “Registry”).
2. 2.5% if the online bet is organized by Argentine resident operators enrolled in the Registry, as long as they have certain “genuine investments” in Argentina related to such activity (as detailed below).
3. 7.5% if the online bet is organized by Argentine resident operators not registered with the Registry.
4. 10% if a foreign person is directly or indirectly involved in the organization of the online bet, and such person (i) does not have the obligation of being enrolled in the Registry or, if required, is indeed registered, and (ii) is not located, based, or domiciled in a “non-cooperative jurisdiction” or in a “nil or low-tax jurisdiction.”
5. 15% if a foreign person is directly or indirectly involved in the organization of the online bet, and such person (i) is not enrolled in the Registry when it had to, or (ii) even if registered, it is located, based, or domiciled in a “non-cooperative jurisdiction” or in a “nil or low-tax jurisdiction.”

Tax base. The Law sets forth that the Tax base will be the “net value of the deposits made by the User in the betting account.” The Decree clarifies that, for the purposes of calculating the tax, the net value of the deposit made in User’s betting account will be the amount in local currency (Argentine pesos) of the deposits made by the User in such account, regardless of the outcome of the bets and/or the game, net of this Tax. In order to determine such net value, the following formula should be applied:

Amount of the deposit x Tax Rate

1 + Tax Rate

The Decree also clarifies that the Tax base will be constituted by all the deposits made in the User’s gaming account except for the credits received by the User resulting from the successive winnings generated throughout the gaming cycle or credits granted by the operator as promotional or advertising modalities. In other words, credits resulting from prizes and promotional campaigns would not subject to Tax.

Finally, the Decree establishes that transactions made in foreign currency will have to be converted into local currency by applying the FX rates provided in its section 8.

Mechanism of collection of the Tax. The Decree sets forth that:

- In cases where an Argentine operator intervenes, the Tax must be collected by such Argentine operator, who will then remit those funds to the AFIP.

- In cases where no Argentine resident operator is involved in the organization or exploitation of the gambling and/or betting games, the Tax must be assessed and collected by the Argentine resident payment facilitators or intermediaries in the payment, who will then remit those funds to the AFIP. If there is more than one intermediary, the Tax collection will be in charge of the one that has the closest commercial relationship with the foreign operator.

Conditions to apply the reduced tax rate (“genuine investments in Argentina”). The Decree defines that the “genuine investments in the country” that must be made in order to apply the reduced rate of 2.5% are those made by Argentine resident operators related exclusively with the exploitation of games of chance and/or bets (either in person or online) as long as the following parameters are concurrently verified:

1. Capital investment: there must be a capital investment of more than ARS 200 million as of the “fiscal year closed on January 1, 2021.”  In the case of joint ventures or other types of associative contracts, this parameter must be complied with by its members, considering the capital invested jointly.
2. Personnel employed: there must be a 20% increase in the personnel employed on a full-time modality by the Argentine operator, with a minimum of 20 employees. Such increase must be verified by comparing the payroll of the immediate month prior to the entry into force of this Decree or the immediate month prior to the request of registration in the Registry. In case of employers who are registered as such after the entry into force of this Decree, such employee must hire at least 30 employees on a full-time modality.

 

Cases in which the aggravated tax rate (10 or 15%) applies (“direct or indirect involvement of a foreign person”). The Decree sets forth that the “direct or indirect involvement of a foreign person” is verified when one of the following situations takes place:

1. In the case of bets and/or games of chance organized or exploited by a foreign person.
2. In the case of bets and/or games of chance organized or exploited by an Argentine resident operator and the foreign party is the only supplier of:
   • The software licenses and software maintenance
   • Hosting of website
   • Data storage

This situation will not be verified if the operator provides evidence that it has hired also local providers to provide such services.

3. When the remittance of profits to the foreign party by the Argentine resident operator is higher than 60% of those assessed in accounting terms in the fiscal year immediately preceding the one in which the taxed bet is made.

Finally, when the foreign person involved in the organization of the online bet is located, based or domiciled in a “non-cooperative jurisdiction” or in a “nil or low-tax jurisdiction,” the tax rate will always be 15%.  Moreover, the Decree clarifies that, in those cases when there is more than one foreign person involved in the organization of the bet, both the registration requirement (if applicable) and the requisite of not being located, based, or domiciled in a “non-cooperative jurisdiction” or in a “nil or low-tax jurisdiction”, must be complied with by all the participant foreign entities to apply the 10% tax rate. If not, the aggravated 15% rate would be applicable.

Delegations made to AFIP. the Decree delegates in AFIP certain powers to implement the collection of the Tax, as follows:

• AFIP will be responsible for identifying who will be Tax collection agents, by preparing a list of all the operators, organizers, and exploiters of online gambling and/or betting games and maintaining updated such list. For the preparation/update of such list, the following agencies and organisms must submit to AFIP certain data and information in their knowledge related to this matter: (i) the Argentine Agency in charge of the registry of internet domains (i.e., “Dirección Nacional del Registro de Dominios de Internet” in Spanish), the Argentine Telecommunications Agency (i.e. “Ente Nacional of Telecomunicaciones” or “ENACOM”,  after its acronym in Spanish), and (iii) the gambling and/or betting regulatory bodies of each local jurisdiction (i.e., the City of Buenos Aires and all the Argentine Provinces)
• AFIP will have to issue a general resolution establishing the mechanism, formalities, and terms for the collection of the Tax by any of the designated collection agents.
• AFIP will be responsible for implementing the Registry, with the information provided by the different governmental agencies that regulate the activity.
• AFIP will establish an information regime applicable to the operators of online betting and/or gaming exploitation and to the intermediaries that make possible the payment of the value of online betting and/or gaming.

Entry into force of the provisions of the Decree. In principle, the provisions of this Decree entered into force on June 2, 2022, which was the date of publication of the Decree in the Official Gazette, except for the cases in which the tax must be collected by an intermediary in the payment, in which case the tax will apply when the lists designating the collection agents are prepared by AFIP.

Transitory provision until the creation of the Registry. For the taxable events taking place before the creation of the Registry, the following tax rates are applicable: (i) 10% when a “direct or indirect involvement of a foreign person” is verified, as long as such person/s is not located, based, or domiciled in a “non-cooperative jurisdiction” or in a “nil or low-tax jurisdiction;” and (ii) 5% in all other cases, unless both conditions to apply the reduced tax rate of 2.5% are verified, in which case such reduced rate will apply.