New restrictions on registration of “off-shore” companies in the City of Buenos Aires

The Public Registry of Commerce of the City of Buenos Aires (“PRC”) issued Resolution No 2/05, by which it bars registration under sections 118 and 123(1) of the Argentine Companies Law (“ACL”) of foreign companies with no legal capacity and legitimacy to act in the place of incorporation (“off-shore” companies).

The resolution also imposes new requirements for the registration of certain foreign companies under sections 118 and 123 of the ACL, thereby making said registration proceedings more lengthy and complicated.

The above mentioned prohibition is limited only to registrations within the City of Buenos Aires, as the PRC’s jurisdiction is limited to same. Some other jurisdictions within Argentina may shortly follow this trend with their own resolutions.

Resolution No 2/05 is in force as of the date of its publication (February 17, 2005).

1.    Main changes introduced by Resolution No 2/05

a.  Off-shore companies(2)

Section 1 of Resolution No 2/05 states that the PRC will not register foreign companies with no legal capacity in their place of incorporation to carry out their main activity or the activities set forth in sections 118 and 123 of the ACL.

Furthermore, according to section 2 of Resolution No 2/05, if these companies resolve to carry out any of the activities foreseen in sections 118 or 123 of the ACL, they shall adapt their registration in order to comply with Argentine law, thus being compelled to obtain registration with the PRC as an Argentine company.

b.  Foreign companies from low tax jurisdiction

Continuing with PRC’s previous measures adopted by means of Resolution No 7/03(3), the PRC will from now on apply restrictive criteria when analysing the fulfilment of the requirements set forth in section 1 of Resolution No 7/03 (requirements to register foreign companies) when registration is sought by a company incorporated in a low or null tax jurisdiction as defined by the income tax law and its regulatory decree (“low tax jurisdictions”). This will be so, even if the laws of the country of incorporation do not impose any restrictions or prohibitions on the activities of said companies in their country of origin.

In addition, in the case of foreign companies incorporated in a low tax jurisdiction seeking registration under section 118 of the ACL, the PRC will require proof that the foreign company actually carries out economically relevant activity in its country of incorporation.

Foreign companies incorporated in low tax jurisdictions that are registered or that in the future require registration with the PRC under section 118 of the ACL, will have to annually file evidence showing that their main activity is carried out in their jurisdiction of incorporation. These documents will have to be filed when the Argentine branch presents the annual financial statements.

c.  Foreign companies from non-cooperative jurisdictions

The provisions regarding foreign companies incorporated in low tax jurisdictions will also apply when the foreign company comes from jurisdictions considered as non-cooperative in the fight against money laundering and transnational crime (“non-cooperative jurisdictions”) by the Argentine Central Bank (Banco Central de la República Argentina), the Financial Investigation Unit (Unidad de Investigación Financiera), the Ministry of Justice and Human Rights, Organization of American Sates, Financial Action Task Force on Money Laundering or other international organizations.

As in the case of low tax jurisdictions, foreign companies incorporated in non-cooperative jurisdictions that are registered or that in the future request registration with the PRC under section 118 of the ACL, will have to annually file evidence showing that their main activity is carried out in the jurisdiction of incorporation. Also, these documents will have to be filed when the Argentine branch files the annual financial statements.

2.    Consequences of non-compliance

Pursuant to section 7 of Resolution No 2/05, the PRC will ask for the judicial cancellation of the registration of the above-mentioned companies that, when this Resolution enters into force, are included in any of the following situations:

(i) the foreign company has not complied with the filings required by sections 3 and 4 of PRC Resolution No 7/04(4) and they do not comply within 90 calendar days from the entry into force of this resolution(5).

(ii) in case of failure to comply with the requirements explained in item (i) above, the foreign company does not file the presentation set forth by PRC Resolution No 12/03(6).

Moreover, Resolution No 2/05 states that “off-shore” companies that have carried out acts unilaterally qualified by them as isolated acts and that are being investigated under PRC Resolution No 8/03 will have to, if applicable, adapt to the Argentine law according to the provisions of PRC Resolution No 12/03.

Resolution No 2/05 states that the provisions explained above are not applicable to foreign companies that complied with PRC Resolution No 22/05 (investment vehicles)(7). However, in these cases, the PRC will send the file to the tax authority (Administración General de Ingresos Públicos) so that said authority renders an opinion on the fiscal legality of the use of an investment vehicle.

Finally, it must be noted that all documents issued in a foreign country that must be filed to comply with this resolution must be authenticated and legalized according to the Apostille Convention or by the Argentine Ministry of Foreign Affairs.

(1) Section 118 regulates the incorporation of branches of a foreign company whereas section 123 regulates the registration of a foreign company for the sole purpose of participating in Argentine companies as shareholders or quota-holders, as the case may be.

(2) For purposes of Resolution No 2/05 “off-shore companies” shall mean the foreign companies that, according to the laws of their place of incorporation cannot carry out all their activities or their main one in their place of origin.

(3) PRC Resolution No 7/03 imposes new requirements for the registration of foreign companies as well as new information to be fulfilled annually by it. By means of Resolution No 7/03 the PRC requests additional documentation to ascertain that the legal domicile, principal purpose and main activity of the foreign entity registered with the PRC is carried out outside Argentina.

(4) Resolution No 2/05 says “7/04” but we understand it refers to Resolution No 7/03.

(5) Section 3 states that attorneys-in-fact of foreign entities registered pursuant to Section 118 ACL must file annually, the following information with the PRC: 1) a report providing the following information: a) the foreign company’s complete name, b) the amount of the foreign company’s participation in the local company, expressed both in Argentine and foreign currency, and c) the date and amount of the irrevocable capital contributions made to the local company, if any; 2) an accountant’s certificate from the place of origin, incorporation or registration of the foreign company, evidencing the composition and value of the foreign company’s assets, specified as current and non-current assets placed outside the Republic of Argentina.
Section 4 states that legal representatives of foreign entities registered with the PRC under section 123 of the ACL must file annually the following information with the PRC: 1) a report providing the following information: a) the foreign company’s complete name, b) the amount of the foreign company’s participation in the local company, expressed both in Argentine and foreign currency, and c) the date of the irrevocable capital contributions made to the local company, if any. If the local companies where the foreign companies participate are companies whose purpose is exclusively financial and/or investment, are cross holding companies, or are controlled or related companies, there are some additional requirements; 2) an accountant’s certificate from the place of origin, incorporation or registration of the foreign company, evidencing the composition and value of the foreign company’s assets, specified as current and non-current assets placed outside the Republic of Argentina; 3) legal representatives must evidence the fulfillment of Resolution No 1375/02 enacted by the Federal Administration of Public Revenue (“AFIP”), for the immediately preceding calendar year or lesser period, as the case may be.

(6) PRC Resolution No 12/2003 states the procedure and requirements to adapt a foreign company to the Argentine law.

(7) Resolution No 22/04, simplifies the filing requirements for some foreign companies registered with the PRC imposed by Resolution No 7/03. Resolution No 22 is applicable to foreign companies belonging to a group of companies whose direct or indirect controlling company is incorporated and has its domicile in a foreign country and is subject to a foreign law. As a result of Resolution No 22, foreign companies registered with the PRC who cannot comply with Resolution No 7/03, can instead file the following: 1) a certificate expressing that the sole purpose of the foreign company is to serve as a special purpose vehicle (SPV) of the controlling company of the same economic group.; 2) a certificate providing sufficient evidence that the direct (or indirect) controlling company complies with Resolution No 7; 3) an affidavit executed by the legal representative of the SPV with: (i) a corporate organizational chart of the chain of companies that control de SPV; (ii) certain information about the shareholders of the SPV and about shareholders of the shareholders of the SPV.