New Regime for Large Investments

The Bill Bases y Puntos de Partida para la Libertad de los Argentinos creates an Incentive Regime for Large Investments Inversiones’ (RIGI). The RIGI would provide legal framework for investment promotion unlike anything in the Argentine rules and laws.

 

Although the RIGI has certain similarities and points in common with previous laws (such as the Mining Investment Regime of 1993 the Legal Regulations on National Promotion for the Use of Sources of Renewable Energy of 2007 and 2017) besides not being limited to one specific economic sector, it would provide a comprehensive system of benefits, incentives, and guarantees which would be considerably superior to previous incentive frameworks.

 

Listed below are some of RIGI’s most salient features. 

 

1. Application conditions

 

Investment means: as a rule, adhesion to RIGI (and consequently securing of the benefits, incentives, and guarantees in it) would have to be structured through single project entities (SPEs) holding a project that qualifies as a Large Investment.

 

To that end, the following will be considered SPEs:

 

1. Corporations, including Sole Shareholder Corporation (SAU) and limited liability companies,
2. branches established by companies incorporated abroad,
3. joint ventures and other associative contracts,
4. dedicated branches (Sucursales Dedicadas) considered SPEs. These are branches used to join the RIGI, incorporated by corporations, LLCs, and/or branches  established by companies incorporated abroad that carry out one or more activities that would not be part of the investment project or own one or more assets that would not be affected to the RIGI project, provided that the dedicated branches also comply with the requirements established in the RIGI.

 

In addition to SPEs, concessionaires of infrastructure works and/or services provided in competition with other concessionaires or operators, either locally or regionally, could also request to adhere, of they comply with the requirements established in the RIGI.

 

Large Investments: To be considered “Large Investment” for RIGI, the project’s sponsor would have to certify the acquisition, production, construction, and/or development of assets that comply with an investment amount per project in computable assets equal to or higher than USD 200,000,000. The Federal Executive Branch may establish a higher amount per productive sector, of up to USD 900,000,000.

 

SPEs with an investment in computable assets equal to or greater than USD 1,000,000,000,000, with projects that may result in the positioning of Argentina as a new long-term supplier in global markets in which it does not a relevant participation may be qualified as “Long-Term Strategic Exports” and secure the benefits and incentives described below.

 

To calculate the minimum investment requirements, among others, the following could be considered computable assets:

 

1. the acquisition, production, construction, and/or development of assets affected to projects included in the RIGI,
2. the acquisition of units, shares, and/or equity interests in corporations may be considered; if the applicable requirements and limitations are met,
3. the acquisition of units, shares, and/or equity interests in an SPE,
4. real estate,
5. usufruct rights over real estate,
6. mining, oil, and/or gas concessions.

 

The calculation of computable assets should be analyzed on a case-by-case basis, since RIGI establishes different limitations. Moreover, this calculation, to a certain extent, would be subject to the parameters to be determined by the implementing regulations.

 

The term to file the application to adhere to RIGI is two years as of the entry into effect of the law extendable for one year. The RIGI establishes a set of requirements relating to the investment plan that must be included in the application request.

 

 

2. Tax benefits

 

Income tax. SPEs (from now on, references to SPEs imply they adhere to the RIGI) adhered to the regime may be subject to a special tax treatment.

 

1. The tax rate will be 25%, and the progressive scale of Income Tax Law (ITL) will not apply.

 

2. SPEs may, for the investments they make, choose to practice the corresponding depreciation of the assets, in accordance with the rules provided for in the ITL, or according to the regime below, with certain limitations:

 

1. 1. 1. On depreciable movable property acquired, manufactured, produced, or imported: at least in two equal and consecutive annual instalments.

 

1. 1. 2. In mines, mineral quarries, forests, and similar assets; or in infrastructure works started in that period: at least in the number of annual, equal, and consecutive instalments resulting from considering their useful life reduced to 60% of the estimated useful life.

 

3. Net operating losses of the SPE in a tax period that cannot be offset by taxable profits of the same period may be deducted from taxable profits realized in the immediately following years, with no time limit. After five years without having offset such losses against taxable profits, they may be transferred to third parties. And in the case of Dedicated Branches, they may also be used to offset taxable profits of the company. 

 

Net operating losses may be restated considering the variation of the wholesale domestic price index between the month of the end of the fiscal year in which they originated and the month of the end of the fiscal year to be settled.

 

4. Restatements established in the ITL will be made based on percentage variations of the CPI, and section 93 of such law will not apply.

 

Dividends and profits. When dividends and profits from the SPEs are distributed after three years as from the end of the tax year in which the profits were realized, they will be subject to a 3,50% Income Tax rate. This will only apply after 7 years from the date of adhering to the RIGI.

 

Long-term Strategic Export Projects

 

1. Payments made to non-residents by the SPE holder of such projects related to maritime leases or charters;  international transport services for exports; and  services included in engineering, procurement, and construction contracts, are exempt from income tax. 

 

2. If payments made by SPEs to non-residents are not included in any of the above cases, they will be subject to income tax on a presumed net income equal to 30% of the amounts paid, unless there is a provision including a more favorable treatment.

 

3. If the relevant payments are subject to income tax, grossing up will not apply.

 

Transactions between SPEs and related parties. Transfer pricing rules of section 17 of the ITL apply, except formal obligations.

 

Value Added Tax (VAT). A system based on "Tax Credit Certificates" is established to pay obligations, based on these considerations:

 

Under certain conditions, SPEs may pay VAT to their suppliers, or to the Argentine tax authorities in the case of imports of goods, by delivering Tax Credit Certificates. Suppliers will consider Tax Credit Certificates as a balance in favor of the tax. When the supplier requests the refund or transfer to third parties of balances of such certificates, and the Argentine tax authorities do not refund the sum within 3 months, the beneficiary may transfer said Tax Credit Certificates to third parties without needing prior approval. Beneficiaries may not compute current tax credits paid with Tax Credit Certificates.

 

The regulation will establish the requirements, procedures, and conditions for the issuance, delivery, and/or transfer of Tax Credit Certificates. The Enforcement Authority will establish the operational aspects.

 

Beneficiaries established under joint ventures or other associative contracts. These will be considered subjects for income tax purposes. Distributions of profits of these SPEs to their members will not be computable by their beneficiaries for purposes of assessing their net profit. Likewise, no provincial or municipal taxes may be levied on transactions, transfers, sales, leases, services, or any other economic relationship between the SPE and its members.

 

Tax on Debits and Credits on Bank Accounts. SPEs may compute 100% of the amounts paid and/or received for the tax as a credit for income tax.

 

Deductions for interest and exchange differences linked to the financing of the Project. The regulation related to the limit on interest deduction will not apply during the first five years as from the date of adhering.

 

Accounting records in USD. SPEs may choose to keep their accounting records and financial statements in USD using International Financial Reporting Standards.

 

Tax treatment of Dedicated Branches. A special treatment is established for this type of SPEs:

 

1. Income Tax. They will be considered subjects of income tax. Distributions of profits to the company to which they belong will not be computable by their beneficiaries to determine their net profit.

 

The assignment of assets made from the company to the Dedicated Branch to establish it, register and incorporate it into the Regime: (i) will enjoy the tax benefits the company to which it belongs had, in proportion to the assigned assets; and (ii) certain tax rights and obligations corresponding to the company they belong to will be transferred to the dedicated branch, depending on the value of the assigned assets, such as losses, positive balances of the inflation adjustment, tax exemptions, among others.

 

2. VAT. They are subject to this tax and are included in its treatment separately from the company to which they belong.

 

Allocations made as a result of establishing the Dedicated Branch to adhere to the RIGI will not be considered sales. Tax balances existing in the company will be attributable to the Dedicated Branch in proportion to the assigned assets.

 

3. Other national, provincial and/or municipal taxes. No other national, provincial, or municipal taxes may be levied on transactions, acts, or economic relations between the company and the Dedicated Branch.

 

Limits. Tax incentives granted through RIGI will not produce effects if they result in a transfer of income to foreign tax authorities by applying a global minimum tax under the second pillar of the Inclusive Framework of the Organization for Economic Co-operation and Development (OECD).

 

Corporate Reorganization. Reorganizations of companies carried out to establish an SPE or invest in qualifying assets may qualify as tax-free, following section 80 of the ITL, with certain modifications aimed at relaxing the requirements.

 

3. Customs-related benefits

 

 Projects will be exempted from customs duties and will receive other benefits, such as a guaranteed stability of the customs regime for 30 years.

 

Projects will also be exempted from import duties, statistical fee, and any other advanced payment regime on definitive and/or temporary imports of capital goods, parts, pieces, components, and raw materials. Export duties will also be fully exempt for definitive exports carried out by projects included in the RIGI three years after their inclusion. For Long-Term Strategic Exports Projects, the exemption on export duties begins after the second year after their inclusion.

 

Projects cannot be subject to direct or indirect restrictions or prohibitions for importing or exporting other than non-economic prohibitions.

 

The Bill specifically declares that the benefits of the RIGI are compatible with the use of free-trade zones.

 

4. Foreign Exchange Regime

 

The export collections of products from the projects are exempted from their obligation to be repatriated and settled in the foreign exchange market (FX Market) in these percentages:

 

1. 20% as from the first year,
2. 40% as from the second year,
3. 100% as from the third year.

These funds will be considered freely available funds for SPEs. Likewise, they will not be obliged to repatriate and settle in the FX Market the funds corresponding to other items (e.g., capital contributions) related to the approved investment plan, these also being considered freely available funds.

 

In the case of an SPE owning a Long-Term Strategic Export project, these percentages are exempted from the obligation to repatriate and settle export collections through the FX Market:

 

1. 20% as from the date of adhering to RIGI,
2. 40% as from the first year,
3. 100% as from the second year.

 

Foreign currency from local or external financial loans taken by the SPEs will not be subject to restrictions, and will be considered freely available funds both in Argentina and abroad. They may also be used for any purpose −provided that they are disbursed after the entry into force of the Project−. SPEs will not be limited to holding liquid external assets, although they may have to use their freely available funds in first place to access the FX Market.

 

Current or future foreign exchange regulations establishing any restrictions or requiring prior authorizations to access the FX Market to pay principal on loans and other financial indebtedness abroad, or repatriation of direct investments of non-residents, will not apply to SPE if the amounts repatriated and sold in the FX Market as loans and other financial indebtedness abroad and/or capital contributions or other direct investments by the SPE are, at all times, greater than or equal to the amounts in foreign currency they require.

 

 

5. Guarantees and Stability

 

Guarantees. SPEs are ensured full availability of the results of their projects, without the obligation of trading their products in the local market; the full availability of their assets and investments −which will not be subject to confiscatory or expropriation acts−, and the right to the payment of profits, dividends, and interest through access to the FX Market, as long as the funds from the Project have been repatriated and settled through the FX Market.

 

Regulatory stability: SPEs also benefit from regulatory stability regarding tax, customs, and FX regulations. This stability implies that the incentives mentioned above may not be hindered or reduced by any future regulation that could change the tax, customs, of FX treatment of the project; even the repeal of the Law enacting the RIGI.

 

Tax stability. The regime provides a tax stability for 30 years. Taxes to be applied to the SPEs will be the ones in force on the date it was included in the regime, considering the modifications above. New taxes created after the date of inclusion other than those in force at that date or provided for in this regime will not apply to such SPEs. Increases in existing taxes will also not apply (the same will apply to increases in existing taxes).

 

SPEs may benefit from the elimination or reduction of taxes that could be established in the future, if they are more favorable. This benefit does not include VAT or social security contributions.

 

This benefit grants the right to reject any claim made by Argentine tax authorities for amounts exceeding the tax payable in accordance with the paragraphs above. If the SPE pays the amount that does not apply, this benefit will enable it to use it as a tax credit. The SPE may use it to pay any other federal tax.

 

SPEs invoking tax stability will be responsible of proving, in each case, that it has actually occurred. However, when the breach is a consequence of the creation of a new tax, the increase in a tax, or of a legal or regulatory modification of any aspect related to the taxes in force at the date of inclusion, it will be the responsibility of the Argentine tax authorities to prove and justify that the increase has not occurred as a precondition to apply such tax or the higher rate to the SPE.

 

Argentine tax authorities will be waived from filing criminal complaints when the SPE has revealed and informed the criteria used to assess the tax obligation through a document filed before submitting the tax return.

 

Customs stability.  The RIGI provides for the stability of the customs regime for a period of 30 years, starting from the SPE's adherence. Additionally, it aims to ensure the possibility of drafting manual declarations and settlements to safeguard customs stability in cases of regulatory or rate changes.

 

Foreign Exchange stability. The RIGI also establishes exchange rate stability for a period of 30 years, counted from the SPE's adherence. The current exchange regime cannot be affected by exchange regulations establishing more onerous conditions.

 

Stability of Long-Term Strategic Export Projects: the enforcement authority may extend the stability guarantee of these projects carried out in successive stages up to 30 years after the estimated launching date of each stage. In no case it may extend it beyond 30 years, counted as from the 10^th year after the launching of the first stage.

 

6. Coordination with local jurisdictions

 

Limitation to local jurisdictions. Large Investments carried out under RIGI are declared to be of federal interest under the terms of section 75, paragraph 18, of the Argentine Constitution. Any regulation or de facto measure issued or implemented at the federal level or local level (provinces, City of Buenos Aires, and municipalities, whether or not they adhere to RIGI) infringing such declaration of federal interest will be null and void and the Federal Justice will prevent its application.

 

The declaration of federal interest will be considered infringed when, among others, they (i) tax the economic relations between the SPEs and their members in the case of SPEs formed by associative contracts; (ii) tax the economic relations between the companies and the dedicated branches; (iii) tax imports made by SPEs adhering to RIGI; (iv) restrict the free import and export of goods for the construction, operation, and development of the projects adhered to RIGI; (v) apply measures that change the price of imported or exported goods.

 

Invitation. The Bill Bases y Puntos de Partida para la Libertad de los Argentinos invites provinces and the City of Buenos Aires to enact the necessary regulations to establish procedures consistent with the purposes of the law.

 

7. Coordination with other promotional regimes

 

Compatibility with other promotion and incentive regimes. The RIGI benefits may not be combined with incentives of the same nature in other pre-existing promotional regimes.

 

Adhering to this regime implies there is no waiver or incompatibility with other current and/or future promotional regimes. Incentives of different nature may be combined, if they do not overlap with or duplicate the incentives in this regime.

 

8. Dispute resolution

 

The RIGI has relevant provisions on dispute resolution mechanisms for disputes that may arise between an SPE and the Argentine Government. In this sense, it establishes a "tiered" clause establishing all disputes arising from the RIGI will be resolved by amicable negotiations or, if the dispute cannot be resolved within 60 calendar days, submitted to arbitration.

 

For the purposes of such arbitration, SPEs may choose among three arbitration rules: the Permanent Court of Arbitration (PCA) Rules, the International Chamber of Commerce (ICC) Rules or, notably, the International Centre for Settlement of Investment Disputes (ICSID) and its Additional Facility Arbitration Rules. The arbitral tribunal will be composed of three arbitrators who must not be Argentine nationals or nationals of the state of origin of the majority shareholders of SPE. The seat of arbitration will be determined by the administering institution and cannot be located in Argentina.

 

Likewise, the RIGI vests the Executive with the power to establish dispute resolution mechanisms with the SPEs, specific for each project, in the administrative act that approves the application for adhesion to the regime and the SPE’s investment plan. If arbitration has been agreed to, it will not be necessary to first exhaust the administrative stage.

 

Finally, the RIGI establishes that the rights acquired under this regime will be considered protected investments included in the meaning of the applicable bilateral investment treaties.