New tax on credits and debits in checking accounts

I. Taxable transactions

Law No. 25,413 (the “Competitiveness Law”) states that the Tax applies only on debits and credits in checking accounts. However, the Competitiveness Law delegates in the National Executive Power the determination of the definitive scope of the Tax. Applying said delegation, the Executive Power passed several decrees that declared reached by the Tax many transactions that due to their special nature and characteristics are similar or could be used in substitution of a checking account.

Therefore, the Tax applies on:

i) Debits and credits in checking accounts of entities regulated by Law No. 21,526 (the “Financial Entities Law”).

ii) Several transactions in which a checking account is not used, made by entities regulated by the Financial Entities Law. The following transactions, among others, are included: payments on behalf or in the name of third parties, except those fulfilling some characteristics; drafts and transfers of funds made by any means, except those fulfilling some characteristics; etc.

iii) Every transfer or delivery of own or third parties’ funds –even in cash-, made by any person (including entities regulated by the Financial Entities Law), made through organized systems of payment, substituting the use of checking accounts, and in the practice of economic activities.

II. Tax Rate

The general rate of the Tax is 0.4%. In general, in the cases ii) and iii) of the precedent point (transactions that substitute the use of checking accounts) the applicable rate is 0.8%.

Likewise, there is a reduced rate of 0.075% for some activities that, due to their special characteristics, make a significant use of checks and their profit is low compared with the Tax.

III. Exclusions and exemptions

The following cases, among others, are exempt or excluded from the Tax:

* The entities recognized as exempted from the Income Tax by the Argentine tax authorities.

* The credits and debits related to transactions made by the Argentine Central Bank and the institutions regulated by the Financial Entities Law, or between those institutions.

* The debits or credits related to transfers of funds made by any means (except checks) destined to other checking accounts owned by the same person. The exemption does not apply if the accounts belong to more than one legal entity, except in case of joint venture contracts regulated by the Corporations Law.

* The credits in checking accounts originated in bank loans, the debits and credits originated as a consequence of the renewal of those loans, and the credits originated in the advance of funds as a consequence of discounts of promissory notes, invoices, checks, etc., in this last case when the financial entity credits in the checking account the amount corresponding of the procedure of recovery.

* The debits and credits related to salaries of employees, retirement and pension emoluments credited in checking accounts up to the amount credited monthly in the checking account of the beneficiary.

IV. Payment on account and deduction

Taxpayers reached by the Tax at a rate of 0.4% or 0.8%, are allowed to credit up to 37.5% of the Tax paid against the Income Tax, the Presumed Minimum Income Tax and the Value Added Tax Liability. The Tax used as a credit against other taxes is not allowed as a deduction from the Income Tax basis.

V. The draft bill of modification

On July 21st, 2001 the House of Representatives passed some modifications to the Tax. Among them, it must be pointed out the increase of the general rate from the 0.4% to 0.6%, the elimination of most of its exemptions, and the broadening of the scope of application to credits and debits in saving accounts.