The City of Buenos Aires generalizes Stamp Tax

1.    Stamp Tax Features

In 1993, Stamp Tax which had been in force in the City of Buenos Aires was abolished by way of Decree No 114/1993. Until Law No 2,997 (the “Law”) was passed, the City of Buenos Aires abided by its commitment assumed in the Fiscal Agreement (Pacto Fiscal)[1], differentiating it from the provinces. .

Stamp Tax (the “Tax”) is local: each province and now the City of Buenos Aires enact their own regulations regarding this Tax. Although there are some common guidelines, there is no uniformity between the different legislations in topics like exemptions, taxable bases and rates.

To some extent, the Federal Tax Coparticipation Law[2] standardizes the different jurisdictions’ regulations. The Federal Tax Coparticipation Law sets out certain guidelines that the Provinces and the City of Buenos Aires should follow at the time of enacting a legislation regarding this Tax. These guidelines establish that this Tax could be applied to “instruments”[3], i.e. documents that should be signed. In this way, offers implicitly accepted or accepted by way of an act or those written agreements which do not reproduce the offer or its enunciations or core elements are not taxed. This criterion was followed by the Argentine Supreme Court of Justice in several decisions.

The different legislations take into account —as a criterion to determine the instruments taxability— place of execution or place where they have effects. Thus, the same instrument may be taxed in one jurisdiction for its place of execution and in another jurisdiction for its effects.

The Tax payment does not hinder the validity of the act nor its value as judicial evidence.

2.    Stamp tax in the City of Buenos Aires

(a)   Taxable acts

The Law generalized the Tax in the City. As a general rule, every act and agreement for value executed in the City is subject to the Tax.[4] Agreements executed outside the City are also taxed if they produce effects in the City, or if relevant goods or property (subject matter of the transaction) are located in the City.

Even when an agreement is executed in a jurisdiction outside the City, the act or acts (to which the agreement refers)are deemed to have effects in the City if they aim at creating, modifying, assigning, conserving or terminating rights —according to Section 944 of the Civil Code— in the City; providing however, stamp tax had not been paid in the jurisdiction where the agreement has been executed or that an exemption applies.

The above definition is not clear and we foresee it will generate controversies. The Law’s definition differs from the one adopted by several provinces: acceptance, protest, negotiation of the agreement, performance and the institution of enforcement proceedings for compliance.

The Law deems a particular agreement as producing effects in the City if the goods or services (that the agreement makes reference to) are located within the City. This would be the case, for example, if a real estate in the Province of Chaco is subject to an agreement executed in the City of Buenos Aires. In this event, in principle, tax payment in the jurisdiction where the document has been executed would not hinder stamp tax in the City of Buenos Aires if applicable.

Agreements executed in the City of Buenos Aires are not taxed, providing the negotiated goods or properties are located in a province. For example, if parties execute a purchase agreement is executed in the City of Buenos Aires which sales a real estate in the Province of Chaco, this agreement is not taxed within the City.

Legislation of several provinces provides that agreements executed in their respective jurisdiction are not taxed if the agreement has effects in another jurisdiction. However, the Law does not contain a similar provision. Hence, an agreement executed in the City of Buenos Aires having effects in the same jurisdiction may also be taxed (i) in this City and at the same time, (ii) in the jurisdiction where effects are produced. As a consequence of this, it will be necessary to analyze legislation pertaining to every jurisdiction where the agreement has effects in order to verify if taxation applies there.

(b)   Agreements executed by means of mail

The Law taxes agreements executed by means of mail (regular or telegraph) and by e-mail. The Tax must be paid when the counterpart has accepted the offer. The Tax is applicable if the acceptance is documented and reproduces the offer’s terms or its substantial provisions, identifying contract’s subject matter.

Offers accepted by means of a mere fact o tacitly do no fall with the scope of this Tax. This tax is not applicable if acceptance is carried out by means of an e-mail lacking digital signature.

(c)   Taxpayers

Persons who perform taxed acts and/or agreements must pay the Tax. In pledge and mortgage agreements, Tax must be borne by the debtor.

(d)   Tax rates and taxable base

The general tax rate is 0.8%. Sale of land is taxed at a 2.5%.

Normally, taxable base is given by the value agreed in the contract or act. The Law provides the taxable base in accordance with the nature of the act (i.e. real estate purchase agreement, service agreement, leasing, etc.). Should the agreement value be undetermined, parties must estimate it in order to pay the Tax.

(e) Exemptions

The Law provides for several exemptions, namely:

(i)           Incorporation of companies and any act related to its transformation, capital increase, extension of its term of duration, merger, spin-off, division, dissolution, liquidation and adjudication. Considering the extent of the regulation, the agreements by means of which a company receives contributions for future shares subscription and the transfers of goodwill implying a capital increase for the assignee company, may also be included in the exemption. Conversely, the quota or share assignment agreements of companies incorporated in the City of Buenos Aires are not exempted.

(ii)         Contracts assigning intellectual property rights, the contracts of edition and translation of books.

(iii)         Bonds, other accessory obligations as well as the constitution of mortgages and pledges, when it may be evidenced that they were taken to guarantee obligations which have already paid the Stamp Tax in the jurisdiction in which they were executed or that they were exempted in such jurisdiction. If the payment of the Stamp Tax or the exemption over the principal instrument cannot be evidenced, the document in which the guarantees are formalized will be subject to the tax which corresponds to the principal obligation.

(iv)         Instruments, acts and operations of any nature including delivering and receiving money linked and/or necessary to make possible capital increases, the issuance of securities representing debt of the issuer and any other security destined to public offer in the terms of Law No 17,811, by companies or financial trusts duly authorized by the National Securities Commission to make public offer of such securities. This exemption will remain ineffective if the authorization for the public offer of such securities is not requested before the National Securities Commission within 90 calendar days, and/or the placing of the securities is not performed within 180 calendar days from the authorization date.

(v)          Labor contracts for personnel, in any of the modalities referred to by the Law of Labor Contract.