Public offering in debt restructuring

Tax authorities issued ruling 16/02 in which they clarify the scope of the definition of “public offering” that would need to be complied with in their opinion to allow negotiable obligations to enjoy certain tax benefits.

The tax authorities considered such requirements were not complied with in a restructuring of a financing made by some creditors.

In order to define “public offering” the tax authorities remit to Law No. 17,811, section 16, in which “public offering” is defined as “the invitation to carry out any transaction involving securities made to the public at large or to certain sectors or groups of persons by the issuers of securities or one-man organizations or companies engaged fully or partially in the negotiation of securities, either through personal offers, advertisements in the press, radio, television, films, billboards, signs, programs, circulars and printed notices or through any other means”.

As you may notice, the definition of “public offering” covers a broad scope of possibilities. One of the difficulties that this definition poses is that a huge amount of situations fall within grey areas. The securities regulations do not offer any bright line tests nor safe harbors.

Argentine law does not include a definition of private placements. Private placements would need to be defined by exclusion, as any placement of securities which is not made as a public offering.

The ruling 16/02 sheds some light on the definition of “public offering” from the perspective of the tax authorities. In such ruling tax authorities considered that the mere public offering authorization of the Comisión Nacional de Valores (“CNV”) for the issuance of negotiable obligations did not result in the compliance of the public offering requirement of Section 36 bis of the Negotiable Obligations Law No. 23, 576, as amended (“NOL”). The tax authorities observed that in the case under analysis the negotiable obligations were offered only to certain specified persons to consolidate or restructure existing corporate liabilities, and not to the public in general or certain sectors of the public.

Applying a substance over form principle the tax authorities concluded that in this case there was just a novation of the existing debt and, therefore, these negotiable obligations should not enjoy the tax benefits they would have enjoyed if they would have effectively been placed by a “public offering”.

The mere authorization of the CNV will not be sufficient to claim per se that the “public offering” requirement of section 36 bis of the NOL has been complied with. Instead tax authorities will also require that the negotiable obligations effectively be offered to the public in general or to certain sectors of the public, and will conduct a factual analysis of the placement procedure and mechanics.