Double Taxation Treaty Between China and Argentina Approved

Law 27780 was published in the Official Gazette on October 18, 2024, approving the Agreement between the Argentine Republic and the People's Republic of China for the elimination of double taxation with respect to taxes on income and on capital and the prevention of tax evasion and avoidance, which was signed on December 2, 2018.

 

The Treaty seeks to eliminate or mitigate the effects of double taxation on income and wealth between both countries, through the distribution of tax powers, reductions of withholding tax rates, and the implementation of a tax credit mechanism. It also includes a clause for exchanging information between the competent authorities of the Contracting States.

 

In general terms, the Treaty grants certain benefits over Argentine domestic legislation for the payment of dividends, interest, royalties, and capital gains to residents of China, most of them aligned with those provided for in other conventions of the same type that Argentina has signed with other countries. However, this Treaty incorporates as an innovation a differential treatment for certain institutions owned or controlled by each of the Contracting States, granting exemptions or preferential rates above those provided for in the Treaty in general. Item 7 of the Protocol to the Treaty lists the institutions owned or controlled by China and Argentina that will enjoy this differential treatment, such as—in the case of China—the Industrial and Commercial Bank of China (ICBC) or the Silk Road Fund Co., Ltd. This list may be extended by mutual agreement between the competent authorities of both countries.

 

Thus, among others, the Treaty includes these preferential tax rates:

 

	Residents of a Contracting State	Institutions owned or controlled by a Contracting State
Dividends	10% of the gross amount of the dividends, if the beneficial owner is a company owning not less than 25% of the capital of the company paying such dividends, or 15% in all other cases.	5% of the gross amount of the dividends.
Interest	12%	Exempted
Royalties	3%, 5%, 7%, or 10%, depending on the type of royalties being paid.	3%, 5%, 7%, or 10%, depending on the type of royalties being paid.
Capital gains arising from the disposal of shares or equity interests	10% of the gain if the transferor held directly or indirectly, at any time during the 365 days prior to the disposal, an interest of at least 25% of the capital in that company, or 15% in all other cases.	5%

 

The Treaty also provides specific rules for income derived from immovable property, insurance, international shipping and air transport, independent personal services, employment, directors' fees, artists and sportspersons, pensions, government service, and students.

 

The residual rule under the Treaty is that any income without specific treatment in it will be considered as a “business profit” taxed only in the State of residence of the beneficiary, unless it is attributable to a permanent establishment of such business in the other Contracting State.

 

In the area of wealth taxation, the Treaty provides that the assets of a resident of one Contracting State that are located in the other Contracting State may be taxed in both countries, except in the case of ships or aircraft used for international transportation.

 

Methods to eliminate double taxation are also contemplated in the Treaty, such as computing the tax paid in one Contracting State as a tax credit in the other Contracting State. In the case of dividends paid by a company resident in Argentina to a company resident in China, provided that the latter owns at least 10% of the shares or participations of the company distributing the dividends, the tax credit will also include the corporate income tax paid in Argentina by the company distributing the dividends.

 

Finally, the Treaty includes an anti-abuse clause, usually referred to as the “principal purpose test” or PPT, which prevents using the benefits of the Treaty in those cases in which it is reasonable to conclude, considering all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit

 

For the entry into force of the Treaty, it is necessary for each State to notify each other through diplomatic channels that they have completed the internal necessary legal procedures for the entry into force. China has already notified this in 2019. It is estimated that within the next few days Argentina will be notifying China.

 

The Treaty will enter into force 30 days after the date China receives Argentina’s notification, and its provisions will be effective as from January 1 of the following year. Based on this, the Treaty is expected to be effective as of January 1, 2025.