16 September 2016 Argentine Congress approves tax treaty between Argentina and Chile Taxpayers should review the treaty provisions to determine how they might benefit, once the treaty is ratified. On September 7, 2016, the Argentine Congress approved the new "Tax Treaty for the Avoidance of Double Taxation With Respect to Taxes on Income and on Capital and to Prevent Fiscal Evasion and Tax Avoidance" between Argentina and Chile (the Treaty). The Treaty is based on the OECD Model Convention. The Treaty will enter into force once the Argentine Executive Power enacts the bill approved by the Congress and notifies the Chilean Government. The Chilean Government has already notified the Argentine Government, through Note Nº 8,878 (on August 1, 2016), that its internal requirements have been satisfied. — For amounts paid on or after January 1 of the calendar year following the one in which the Treaty entered into force for taxes withheld at source — For tax years beginning on or after January 1 of the calendar year following the one in which the Treaty entered into force for other taxes on income and taxes on capital For Chile, the Treaty provisions will be effective on January 1 following the year in which the Treaty entered into force for: (1) amounts paid, credited to the account, accounted as expense or put at the disposition of the recipient and (2) taxes on income generated after the mentioned date. The provisions of Article 8 related to International Transport will be effective for fiscal years starting from June 30, 2012, onwards in both Chile and Argentina. Current domestic tax rates for interest, royalties and dividends, (general rates, exceptions may apply) are: The Treaty will reduce those withholding rates on payments of interest to 4%, 12% or 15% and royalties to 3%, 10% or 15%. Note dividends paid from Argentina to taxpayers abroad are currently not subject to dividend withholding tax under domestic law. If the dividends paid exceed the pool of accumulated taxable profits (i.e., the profits subject to the 35% corporate income tax in Argentina) of the Argentine entity, however, a 35% Argentine dividend withholding rate applies and the Treaty does not reduce this "equalization tax." The Treaty does not provide any tax relief for dividend distributions from Chile to taxpayers abroad (the so-called Chile Clause included in all of the treaties signed by Chile). — Limits capital gains tax to 16% of the gain upon the disposal of shares and other participation interests, if the participation interests are lower than 20% during the 365 days before the disposal — Deems the operation of large or valuable equipment in the other Contracting State for more than 183 days within 12 months to be a permanent establishment — Eliminates the exemption for Chilean shareholders from the Argentine Tax on Personal Assets included in the previous tax treaty — Includes an exchange of tax information clause that will not limit the exchange to taxes covered by the Treaty, and mutual assistance in the collection of taxes To benefit from the provisions of the Treaty, in addition to the usual requirements (such as tax residence certificate, beneficial ownership clause, etc.), Article 24 introduces Limitation of Benefits (LOB) provisions. For Argentina, this is the first treaty that provides for LOB provisions. The main purpose of these rules is to prevent residents in countries outside of Argentina and Chile from obtaining advantages from the Treaty. In this regard, in order to benefit from the provisions of the Treaty, the residents must also be regarded as "qualified persons" (according to the detailed rules included in Article 24). Furthermore, Treaty benefits will not apply if, based on facts and circumstances, it is reasonable to conclude that obtaining tax treaty benefits was one of the main purposes of a given structure or transaction.
Document ID: 2016-1564 | |||||||||||||||||||||||||||||||||||||||
