Amendments to Regulatory Decree of Argentine Value Added Tax Law

Decree No. 813/2018, published in the Official Gazette on September 11, 2018, introduced several amendments to Regulatory Decree No. 692/1998, which regulates the Argentine Value Added Tax Law (the "Regulatory Decree"). The main amendments were made in relation to:

1. Substitute Taxpayers for the payment of the Value Added Tax ("VAT") corresponding to individuals or entities domiciled or resident abroad who render services within Argentina subject to the tax.
2. Digital services provided by individuals or entities domiciled or resident abroad when the effective use or exploitation is carried out in Argentina.
3. The mechanism for the refund of tax credits generated in the purchase, construction, manufacture, processing or importation of capital assets.
4. The mechanism for the recovery of accumulated tax balance by public service companies.

 

1.            Substitute Taxpayer

Law No. 27,346 incorporated Subsection h) to Section 4 and Section after Section 4 to the VAT Law and created the figure of the Substitute Taxpayer with the purpose of the VAT payment corresponding to the individuals or entities domiciled or resident abroad that render services in Argentina subject to VAT. Please see our comments on Law No. 27,436 (Amendments introduced to the Argentine Tax Regime by Law No. 27,346).

Decree No. 813/2018 regulates this amendment and adds the following Sections to the Regulatory Decree:

• Section after Section 14: The following will not be considered to be "individuals or entities domiciled or resident abroad": (i) those who have the status of “residents” in Argentina, in accordance with the rules of the Argentine Income Tax Law, and/or (ii) those who have a fixed location in Argentina. In that case, these subjects must assess and pay the tax on their own account and not through a substitute taxpayer.
  
  If the individual or entity is domiciled or residing abroad, to the extent that the parameters detailed above are not met, Argentine residents or domiciled in the country that are tenants and/or borrowers of the foreign subject, or those who perform the transactions subject to tax as intermediaries or on behalf of the foreign subject, must act as substitute taxpayer in accordance with the provisions of Section after Section 4 of the VAT Law.
• Section after Section 16: The following  will not be considered to be substitute taxpayers: (i) final consumers, understood as those individuals who allocate the services rendered by the individual or entity domiciled or resident abroad to their particular use or consumption and as long as they do not allocate or incorporate those services in subsequent stages of any economic activity; and (ii) small taxpayers registered in the Simplified Regime for Small Taxpayers (“Régimen Simplificado para Pequeños Contribuyentes”, in Spanish, and also known as “monotributistas”).
• Third Section after Section 65: the tax rate will be applied on the net price of the transaction which results from the invoice or equivalent document issued by the individual or entity domiciled or residing abroad.
• Fourth Section after Section 65: the tax must be assessed and paid by the substitute taxpayer within ten (10) business days after the moment in which the taxable event occurs, understood as the moment in which: (i) the service rendered is finalized or (ii) the total or partial payment of the price occurs, whichever is earlier.
  
  The Argentine Tax Authority (the “AFIP” after its acronym in Spanish) will regulate the forms, terms and conditions to assess and pay the corresponding VAT.
• Fifth Section after Section 65: the formalities and terms for registration, assessment and payment of the tax in cases in which the Argentine, Provincial and/or Municipal States, or the City of Buenos Aires must act as substitute taxpayers will be subject to further regulation by the AFIP. In these cases the AFIP may set forth differential terms and conditions.
• Sixth Section after Section 65: the substitute taxpayer may compute the tax credit resulting from the tax paid under this substitution regime in the same fiscal period in which the tax was paid.
• Section after Section 74: When substitute taxpayers export or perform an activity or transaction that has an export tax treatment, they may request the recovery of the tax paid under this substitution regime, according to the mechanism provided in Section 43 of VAT Law.

 

2.            Digital Services

Law No. 27,430 incorporated Subsection e) to Section 1 of the VAT Law, by means of which a new taxable event for VAT was established: the provision of digital services by individuals or entities domiciled or residing abroad, whose use or exploitation is carried out in Argentina and whose borrower is not subject to VAT for any another taxable event and is not a registered taxpayer (that is, mainly, final costumers).

Decree No. 354/2018, published in the Official Gazette on April 24, 2018, had already regulated the essential aspects of this new taxable event. Please see our comments on Decree No. 354/2018 (Tax Treatment of Digital Services).

Decree No. 813/2018 reproduces Decree No. 354/2018, incorporating its provisions to the Regulatory Decree as Sections after Sections 14, 26 and 65. There is only one amendment: to determine the place of domicile or residence of the digital service’s provider and/or of the relevant intermediary (if applicable) the same criterion that has already been explained in point 1 of this comment will be applicable.

In order to maintain applicable regulations unified in a single text, Decree 354/2018 is abrogated.

Finally, in accordance with new Section 69 of the Regulatory Decree, digital service borrowers are not obliged to register as VAT taxpayers, to the extent that such obligation will be understood as fulfilled by the corresponding tax payment.

 

3.            Mechanism for the refund of tax credits before the acquisition of capital assets

Law No. 27,430 incorporated Section after Section 24 to the VAT Law, and set forth a special regime for the refund of tax credits originated in the purchase, construction, manufacture, processing or final importation of capital assets -except automobiles- which have created a balance in favor of the taxpayer after six (6) consecutive tax periods counted as of the one in which its computation was admitted.

The refund can also be granted in cases where the tax credit has origin in the aforementioned transactions but the acquired capital assets are destined to exports or to activities or transactions that have an export tax treatment.

Please see our comments to this modification of the VAT Law (Tax Reform: Amendment to the Valued Added Tax Law – Digital Services).

Decree No. 813/2018 regulates this new mechanism of tax refund and adds the following Sections after Section 63 to the Regulatory Decree:

• First Section after Section 63: to define the term "automobile" must be added to the first paragraph of Section 51 of the Regulatory Decree ("vehicles defined as such by Section 5, subsection a) of Law 24,449").
• Second Section after Section 63: for the purpose of calculating the sixmonth period provided in the law, it must be considered as included in the one in which the tax credit was obtained, or in which the investment was made or in which the purchase option was exercised (in leasing transactions), as appropriate.
• Third Section after Section 63: when the capital assets are acquired by leasing agreements assimilated to sale and purchase transactions (for the assessment of Income Tax) and are destined to exports or to activities or transactions that have an export tax treatment, the period of time mentioned in the previous Section will be counted as of the fiscal period in which the investments were made.
• Fourth Section after Section 63: the tax credit requested to be refunded will be detracted from the accumulated VAT balance in favor of the taxpayer (accumulated tax credits) existing at the immediately previous fiscal period. Once the request is filed, the amount requested to be refund cannot be computed against the tax debit triggered on transactions subject to VAT.
  
  The AFIP will establish the requirements and conditions that taxpayers must follow to apply for the benefit.
• Fifth Section added after Section 63: for the purpose of the provisions of the seventh paragraph of Section added after Section 24 of VAT Law (in which it is provided that the refund will have a definitive nature as long as the refunded sums have application: (i) regarding transactions subject to VAT in the domestic market: in the amounts duly filed resulting from the differences between the debits and the remaining fiscal credits; and (2) regarding exports: in the amounts that the beneficiary would have been entitled to recover for the assets that motivated the refund), the beneficiary must compare, in each fiscal period, the reimbursed amounts with the amount duly filed and paid that arises from taking from the tax debits, the technical VAT balance corresponding to the immediately previous fiscal period and the remaining fiscal credits not included in the refund request.
  
  Such comparison must be made considering the tax debits and credits generated from the fiscal period immediately following the last expired period at the date of the refund request.
  
  If the comparison made in the first fiscal period shows that the refunded amount is less than or equal to the amount arising from the deduction indicated in the first paragraph, the refund will be definitive. If the amount is greater, the “definitive” status will only proceed with respect to the sum equivalent to that amount. The surplus is subject to comparison in the following fiscal periods, to acquire such definitive status.
  
  In cases of exporters, a similar comparison should be made, with respect to the amounts that, had they not requested the refund, they would have had the right to recover, pursuant to Section 43 of the VAT Law, from the fiscal period immediately following to the last expired period at the date of the refund request.
  
  In the event that the acquired capital assets are destined to both onshore and offshore transactions a pro rata mechanism, in accordance with the treatment prescribed by Section 43 of the VAT Law, will be applicable.
• Sixth Section after Section 63: This Section gives a solution to: (i) taxpayers who sell products manufactured in Argentina to tourists from abroad, which is a transaction that allows a VAT refund to tourists in the terms of the sixth paragraph of Section 43 of the VAT Law, and (ii) taxpayers who provide hosting services (hotels, hostels, pensions, hosting, motels, camps, aparthotels and similar) to tourists from abroad, that also allow VAT refund to tourists in the terms of the seventh paragraph of Section 43 of the VAT Law. For the purposes of making the comparison provided in the first paragraph of the fifth Section after Section 63 and have access to the refund of the tax credits related to the acquisition of capital assets, these taxpayers are allowed to compute the amount that they have effectively reimbursed or refund the tourist as tax paid pursuant the terms of the second paragraph of Section 24 of the VAT Law.
• Seventh Section after Section 63: AFIP will establish the formalities and terms to be followed by the taxpayer if any reimbursement to the Tax Authorities of the refunded amounts has to be done (for example if such refund has not acquired a “definitive” status and the 60 monthterm is concluded). In such case, the taxpayer may compute the reimbursed amounts as a tax credit or as an invoiced tax, in the terms of Section 43 of the VAT Law, in the tax return corresponding to the month of the reimbursement to the Tax Authorities. Such amount cannot be subject again to the refund regime herein regulated.
• Eighth Section after Section 63: If a taxfree reorganization takes place, the continuing entity or entities have to comply with all the obligations of the predecessor entity, to maintain the regime.
• Ninth Section after Section 63: The benefit expiration will operate in the conditions and terms established by the AFIP, regarding the totality of the refunded amounts, applied or not, and provided that some of the causes established in the Law for this purpose occur within the 60 monthterm, counted from the period immediately following to the last expired period at the date of the refund request.

 

4.            Recovery of accumulated tax balance by public service companies

Law 27,430 incorporated second Section after Section 24 of the VAT Law that allows the recovery of the accumulated technical VAT balance for public service companies, to the extent that the tariffs they receive are reduced by the granting of subsidies, tariff compensations, etc., made by the Argentine Government directly or through trusts or special funds set up for that purpose.

Decree No. 813/2018 regulates this recovery regime for public service companies and incorporates the tenth Section after Section 63 of the Regulatory Decree, by means of which it is established that:

• The maximum annual limit recognized for this regime will be determined by the Ministry of Finance for each sector or branch of the economic activity.
• Priority order for the distribution of the aforementioned limit within each sector will be determined by the date on which such accumulated balance was originated. If such criterion is useless, the limit’s allocation will be proportional to the balances’ magnitude in each case. The Ministry of Finance may issue complementary and clarifying rules on the limit’s allocation mechanism.
• The AFIP will establish the periodicity, form and deadline for submitting these recovery requests.

 

5.            Date of entry into force of these amendments

The amendments to the Regulatory Decree entered into force on September 12, 2018, the day after its publication in the Official Gazette.

For the taxable events occurred between January 1, 2017 and the entry into force of these amendments, obligations in charge of a substitute taxpayer pursuant to Section after Section 4 of the VAT Law, must be considered fulfilled as long as: (i) the applicable tax was assessed and paid, or (ii) the substitute taxpayer has not computed such amounts as a tax credit or recovered them through the mechanism provided in Section 43 of the VAT Law.

Regarding the obligation to collect VAT on the provision of digital services from abroad, the intermediaries involved in the payment are forced to act as collection agents of the tax from the moment in which the lists published by the AFIP are applicable.