Taxpayers may be able to offset more of their income tax with the tax paid on debits and credits in local bank accounts.

On May 7, 2018, Argentina published, in the Official Gazette, Decree No. 409/2018 (the Decree), increasing the portion of the tax on debits and credits that can be used to offset income tax obligations. This change responds to the recent comprehensive tax reform enacted through Law 27,430 and Law 27,432.

Background

The tax on credits and debits is imposed on "credits" and "debits" in local bank accounts at a general rate of 0.6% on each credit and debit. The holders of the accounts are liable for the tax, which is generally collected by the financial institutions.

Before the issuance of the Decree, only 34% of the tax paid on "credits" was creditable against income tax and minimum presumed income tax (MPIT) obligations; therefore, an average 17% of the total tax paid on credits and debits was creditable. In fact, the effective tax rate for the tax on credits and debits amounted to 0.996%; that is to say, twice the tax on bank account transactions (1.2%) was imposed on the business's cash flow, less 34% of the tax on "credits" in the account.

Regulatory Decree No. 409/2018

Article 7 of Law No. 27,432 authorized the Executive Power to progressively reduce (by up to 20% each year) the portion of the tax on debits and credits that is non-creditable against income tax obligations.

Accordingly, unlike the 34% rate that was only applicable to credits, Decree No. 409/2018 establishes that 33% of the tax paid for both "credits" and "debits" can offset income tax and MPIT obligations (including obligations arising from annual tax returns or the respective advance payments) for fiscal years starting January 1, 2018, and thereafter. The new creditability percentage is effective for the tax on debits and credits derived from taxable events occurring January 1, 2018, and thereafter.

As a consequence, the creditable portion of the tax increased from the prior average of 17% to 33% (calculated on both credits and debits). The effective tax rate, therefore, will be reduced from 0.996% to 0.804%, considering a 1.2% tax typically applied on any business's cash flow (both credits and debits), and taking into account the new 33% creditability.

The Decree also indicates that, if the applicable tax rates are less than the standard 0.6%, only 20% of the tax on credits and debits may be used to offset income tax or MPIT.

The Government issued the Decree as part of its initiative to make the Argentine economy more competitive.

Companies doing business and different stakeholders investing in Argentina should consider the consequences of the changes and evaluate the effect on their current or future Argentine operations.

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