Law of solidarity and productive reactivation in Argentina and its impact on the Trust

As of the approval of the so-called “Solidarity and Productive Reactivation Law in the framework of the public emergency” (hereinafter “Law of Solidarity and Productive Reactivation”) approved by the newly elected Argentine government in December 2019, and considering that It has brought about some modifications from the tax point of view, different opinions have been handled about how it impacts the Trust from that point of view.

We recall that the figure of the irrevocable foreign Trust (trust), typical tool of patrimonial protection, succession and fiscal planning, has become since the Argentine Tax Reform that occurred at the end of 2017, in one of the main tools of Tax Planning admitted by law in said country.

Now, what is really the scope of the Law of Solidarity and Productive Reactivation and how does it impact the Trust? The purpose of this newsletter is to give a little clarity on the matter by analyzing certain issues that emerge from the standard itself.

First, and to understand a little more about the impact of the Law of Solidarity and Productive Reactivation on the Trust, we must study Chapter 5 of Title IV of the same, which refers to the Personal Property Tax (hereinafter “ISBP”), specifically in article 28 of said regulation that brings with it modifications to article 25 of the ISBP law.

The amendments provide for an increase in the ISBP rate of up to 100% over its maximum rate for assets owned by an Argentine resident located abroad, and also establishes the possibility of decreasing it whenever certain repatriation is verified. Subsequently, the applicable aliquots were defined by Decree 99/2019 [1].

The Law of Solidarity and Productive Reactivation itself is in charge of defining what should be understood by financial assets located abroad, this being the paragraph that brought about the discussion about whether the Trust would be taxed in Argentina or not.

Said paragraph, which we will analyze below, mentions the following, “For the purposes set forth in the preceding paragraph, financial assets located abroad shall be understood as the holding of foreign currency deposited in banking and / or financial and / or similar entities abroad ; corporate and / or equivalent participations (private securities, shares, quotas and other participations) in all types of entities, companies or companies, with or without legal personality, incorporated, domiciled, located or located abroad, including sole proprietorships; rights inherent to the character of beneficiary, trustee (or similar) of trusts (trusts or similar) of any kind constituted abroad, or in foundations of private interest abroad or in any or any other type of assets of similar affectation situated, settled, domiciled and / or incorporated abroad… ”

Starting with this paragraph, what is the fiscal impact on the Trusts?

The key lies in understanding whether there is any Argentine tax resident who has certain rights over the assets contributed to the Trust. For this, first of all, we must analyze what type of Trust exists (to know what types of Trust exist refer to the article published by Insight Trust). Once we understand what type of Trust each person has, and confirm what the effective rights of the settlor or settlor and the beneficiaries are, we can determine whether or not a tax obligation in Argentina applies to them to fulfill any of these roles. .

It is already recognized by the ISBP law that an Argentine tax resident who owns a right (both in the country and abroad) is taxed by said tax in Argentina, this situation should not be interpreted as new. Therefore, the key lies in understanding from the Trust’s analysis whether there is any Argentine tax resident who has certain rights over the assets contributed to the Trust.

Considering that the ISBP is determined at 12/31 of each year, if the founder / s or the beneficiary / ies of a Trust had rights to all or part of the assets of the Trust as of that date, these will be reached by the tax on personal property. In this regard, it must be borne in mind that for this to happen – taxation – a reform was not necessary in the ISBP, since this situation was affected by the tax since its creation [2].

As long as a Trust is presented as irrevocable, where the founder / settlor, who contributes the assets to this independent estate called the Trust, can no longer dispose of them, and discretionary, where the Trustee maintains discretion on when, how and to whom to make the distributions, therefore, there is no real right of the beneficiaries to freely dispose of the assets contributed but a mere expectation, neither the settlor nor the beneficiaries will be liable for the personal property tax, that is, that the tax situation in This sense remains unchanged beyond the approval of the Law of Solidarity and Productive Reactivation.

What conclusions can we draw from the above?

Although it cannot fail to recognize the legal uncertainty existing in Argentina [3], a purely and exclusively legal vision of the Law of Solidarity and Productive Reactivation allows us to maintain that it has been redundant, having referred to the fact that those will be taxed. people who have a certain right over the assets of the Trust, a situation that remains unchanged as the Personal Property Tax Law itself regulated it prior to the approval of this “supposed” reform.

Understand that this “supposed” reform taxes the beneficiaries or the settlor of a Trust, per se [4]; It would imply understanding that the Argentine Personal Property Law has ignored the legal scaffolding of a business (Trust), incorporating a presumption that does not admit evidence to the contrary, in the understanding that the owner of the Trust’s assets is the beneficiary or the settlor. .

Obviously an interpretation of this magnitude could not be sustained because it would collide with:

i) That established by the legislation applicable to the figure of the Trust and in particular to the Trust’s own contract that is analyzed;
ii) A constitutional right in Argentina;
iii) The principle of contributory capacity (those who do not have access to the Trust funds would have to pay the tax).

Therefore, and ultimately, we RECOMMEND when setting up a Trust to analyze what are the objectives sought with it, and resort to specialists who are familiar with Argentine regulations and who can thus prepare the Trust contract. o Trust Deed so that it complies with the claims established by the client when implementing it. Since, in case of not doing it correctly, there may be unintended consequences for the customer when putting it together.

If you require assistance in setting up a Trust or are interested in learning a little more about the scope of this structure, do not hesitate to contact the Insight Trust team at who will be able to assist you throughout the process of advising, setting up and executing a Trust.

[1] Decree 99/2019 established a progressive scale, with the aliquot of the first tranche being 0.70% and the aliquot of the last tranche being 2.25%.

[2] Arts. 16, 19 and 20 of the ISBP Law.

[3] Argentina has been ranked 118 out of 141 countries analyzed in terms of “Efficiency of legal framework in settling disputes”, by the World Economic Forum in its 2019 Annual Report on Competitiveness.

[4] That is, by the mere fact of being PARTIES to a Trust

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