If enacted, the bill would subject more transactions with derivative financial instruments to the corporate income tax. Additionally, the income derived from derivative financial instruments would be taxed as capital gains for taxpayers subject to the personal income tax.

Uruguay's Executive Power proposed a bill on October 17, 2016, that would generally tax transactions with derivative financial instruments (DFIs). The bill would include a broad definition of DFIs that would reference International Accounting Standard No. 39. The bill would apply to DFIs settled as of the 10th day after the Law is published in the Official Gazette.

Provisions that would be included in corporate income tax (CIT) law

The bill would subject income from transactions with DFIs to CIT for taxpayers that are subject to the tax on the transfer of agricultural assets (TTAA). Additionally, income derived by CIT payers from DFI transactions would be considered as Uruguayan-source income.

The recognition of the DFI income, for tax purposes, would occur upon the DFI's "settlement," meaning the payment, assignment, disposal and expiration of the corresponding DFIs, as well as when the gains and losses are netted. The bill would treat gains derived from DFIs as gross income for CIT purposes. The bill would also allow losses derived from DFIs to be fully deductible, provided: (1) the counterparties or intermediaries to the DFI transactions are not entities resident, domiciled, incorporated or located in countries or jurisdictions with low or nil taxation; or (2) the counterparties or intermediaries are not entities that benefit from a special regime of low or nil taxation.

The bill would, however, include specific provisions for companies engaged in financial intermediation activities. These companies are the types of entities that perform activities of trading or mediation in the supply and demand of securities, money or precious metals.

Provisions that would be included in the personal income tax (PIT) law

The bill would tax income derived from transactions with DFIs obtained by PIT payers as capital gains and would recognize income arising from the DFIs upon the DFIs' settlement, meaning their payment, assignment, disposal and expiration, as well as when the gains and losses are netted.

The bill also would:

— Not treat income arising from DFIs as Uruguayan-source income when derived by a nonresident income taxpayer

— Not take revenue from DFIs into account when calculating the value added tax

— Include only the assets and liabilities resulting from the settlement of DFIs in the tax base for the net wealth tax

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