Regulation of the controversial wealth tax in Argentina

On January 29, 2021, through Decree 42/2021 (the “Regulation”), the Regulation of the “Solidarity and Extraordinary Contribution to help mitigate the effects of the Pandemic” was approved in Argentina, Law 27.605 (“Tax on Riches ”), which came into force, through the publication of decree 1024/2020, on December 18, 2020.

Said regulation allows to start the collection of the misnamed solidarity contribution, since it is a tax on wealth.

Some preliminary considerations

It should be remembered that the Wealth Tax establishes, in principle, a one-time collection by the state, in order to allocate these funds to combat the effects of the pandemic.

The subjects reached by the Wealth Tax will be:

  • Human persons residing in Argentina;
  • Human persons of Argentine nationality who have transferred their residence to a country with low or no taxation; Y,
  • Foreign residents who own assets located in Argentina and the value of such assets exceeds the stipulated amount (“Obliged Subjects”).

As long as they have assets in Argentina or abroad for an amount greater than $ 200,000,000 (Argentine pesos), approximately USD 2.5MM, considering the official exchange rate as of December 18, 2020, the date on which it entered in force the law (for more details of this rule go


Regulated aspects

In the first place, the Regulations, in their preliminary considerations, again emphasize that in the event of equity variations during the 180 days prior to the date of entry into force of the law (that is, between June 21, 2020 and June 18, December 2020), and that these configure an intention to avoid the payment of the Wealth Tax, the Federal Administration of Public Revenues (AFIP) will supervise these situations.

Then the article begins by establishing the criteria for the valuation of the shares in the capital of local companies (including sole proprietorships), by the Obliged Subjects, these being:

a) The difference between the assets and liabilities of the company as of December 18, 2020, according to the information that arises from a special balance prepared on that date (balance that could bring operational inconveniences, due to the difficulties involved); or

b) the company’s equity for the last business year closed prior to December 18, 2020. With this option, the inconvenience of making a special balance sheet dated December 18, 2020 may be resolved, although the principle of legality would be violated In tax matters, this option grants greater facilities to the Obliged Subjects, so that no one would challenge it.

In the event that the incorporation of the shares or participations valued according to paragraph b), does not yield a contribution to enter the tax calculation, the use of the criteria established therein would not be allowed, and in this case, it must be valued according to the criteria established in subsection a)

In the same way, the criteria established in subsection a) must be used if the Obligated Parties modified their participation in any local company from the closing date of the last business year until December 18, 2020.

Lastly, this article establishes that the companies in which the Obliged Entities have participation, must provide the information required for the valuation. This assumption seems difficult to apply in practice, especially if it is a minority shareholder.

Perhaps one of the most controversial aspects (within a highly controversial law, as well as its regulations), is that mentioned in article 3 of the Wealth Tax law, confirmed in article 2 of the Regulations, which mentions that, for the determination of the tax, contributions to private interest trusts, trusts or foundations and other similar structures will be considered, not clarifying whether irrevocable and discretionary structures such as trusts are included, or a time limit regarding said contributions.

Then the regulations go on to say that human persons of Argentine nationality who have transferred their residence to a country with low or no taxation and foreign residents who have assets located in Argentina, must designate a substitute responsible for the purposes of complying with the relevant obligations. This assumption seems unfeasible for Argentine nationals with tax residence in a jurisdiction with low or no taxation, even to be audited by the AFIP.

The articles continue, mentioning that they will not count for the purposes of determining the goods included, personal and household objects.

Then articles 5, 6 and 7 make mention of issues related to the repatriation of financial assets abroad established in the Wealth Tax law.

Article 5 mentions that the repatriation period, of at least 30% of financial assets abroad, is 60 business days, it does not clarify from when they begin to count, but everything seems to indicate that the counting from the effective date of the law (December 18, 2020). This term, by the way, seems unreasonable if one takes into account that many Obliged Parties should sell assets they own abroad, which can lead to unplanned losses due to hastening the sale.

Said repatriation confers a “benefit” to the Obliged Subjects, who should not pay tax for the rate increased by 50% for those who have assets abroad, but would do so for the same rate of those who have their assets in Argentina.

Article 6 continues, mentioning that said repatriated funds must remain deposited in an account in Argentina in the name of their holder at least until December 31, 2021 inclusive, or that these funds are totally or partially affected to the following destinations (in case of partial affectation, the remainder must continue to be deposited in personal accounts until December 31, 2021):

a) Sale on the exchange market (nowadays it seems impossible for someone to choose this alternative);

b) Acquisition of negotiable obligations in national currency (that are exclusively in national currency makes the investment less attractive);

c) Acquisition of instruments issued in national currency intended to promote productive investment established by the Executive Power (this last fact makes it unlikely that such instruments will be issued before taxing the tax, although if we think that it is here to stay it may have more logic mentioned provision);

d) Finally, and perhaps the most tempting alternative, the contributions to local companies are established, in which the contributor already had participation before the effective date of the Wealth Tax law. Limiting the distribution of dividends and profits, by said companies, until December 31, 2021 inclusive.

Finally, Article 7 establishes the definition of financial assets for the purposes of the aforementioned repatriation. Mentioning that financial assets will not be considered:

a) The equity interests in foreign entities that carry out operating activities, that is, when their income is mostly from activities that generate active income and not from passive income. Presuming that it is a financial asset when said participation does not exceed 10% of the capital of the entity abroad.

b) Foreign credits or rights related to foreign trade operations carried out within the framework of operational activities will not be considered included.

c) Loans and guarantees, assigned to hedging operations that are closely linked to economic-productive activity and / or are intended to preserve the company’s working capital in the company in which the Obliged Subjects.

Finally, article 8 makes mention of the undivided successions initiated and article 9 returns to the preliminary considerations, leaving the AFIP to control possible operations aimed at avoiding the payment of the Wealth Tax.


Considerations regarding the contributions made to Trusts mentioned in Article 2 of the Regulations

Although we can say that the regulation is very poor in terms of its wording, leaving several doubts or gaps, which we can foresee can be corrected by a possible subsequent regulation of the AFIP, regarding article 2 that refers to contributions to trust, we can be sure that irrevocable and discretionary contributions made to trusts prior to the effective date of the Wealth Tax law will not be affected.

Why can we conclude this?

Basically, neither the Wealth Tax Law nor its regulations specify in which cases the contributions to the trusts will be covered by the tax, generating a regulatory vacuum in this regard.

For this reason, we should consider similar laws approved in Argentina prior to this one, which shed some light on the treatment of trusts in said jurisdiction, and in this sense we find the following:

The tax reform promoted in Argentina at the end of 2017 and approved by Law 27,430 is perhaps the one that sheds the most light on this matter and lays the strongest legal bases on the structure of the Trust and its recognition in that country.

Said reform mentions in its article 71 numeral d) that ¨The profits obtained by trusts, trusts, private interest foundations and other similar structures constituted, domiciled or located abroad, as well as any contract or arrangement entered into abroad or under a Foreign legal regime, whose main purpose is the administration of assets, will be imputed by the resident subject that controls them to the fiscal year or fiscal year in which the annual exercise of such entities, contracts or arrangements ends.

It will be understood that a subject has control when there is evidence that the financial assets are kept in his possession and / or are managed by said subject (including the following cases, among others: i. In the case of trusts, trusts or foundations, revocable ; ii. when the constituent subject is also a beneficiary; and iii. when that subject has decision-making power, directly or indirectly, to invest or divest in the assets, and so on.

Considering the aforementioned regulations, we can conclude that in Argentina there is a recognition of the figure of trusts and that there are certain principles in this regard that should be mentioned:

  • Revocable or irrevocable trusts are a valid way of structuring the patrimony;
  • Irrevocable and discretionary Trust where the settlor or settlor does not maintain control will not be subject to taxes in said country;
  • The Beneficiaries will pay taxes only when they receive benefits from the Trust, and they should not even include the Trust’s assets on their tax return due to the fact that they are discretionary trust.
  • Contributions to Trusts for hereditary purposes cannot be classified as tax avoidance, precisely because they have a family planning objective.

In addition to the aforementioned regulations, there is a wide range of jurisprudential rulings that support the aforementioned, such as the Eurnekian case (to read more about these matters, refer to ).

Therefore, we can conclude that irrevocable and discretionary trust contributions imply a true detachment by the settlor or trustee of the contributed assets, ceasing at that time to dispose of them, making it impossible for them to pay taxes on assets that they no longer own.

It would be unconstitutional and contrary to Argentine legislation (as well as jurisprudential rulings), to seek to tax contributions made by irrevocable and discretionary Subjects Obligated to trust with this tax.

Anti-constitutional aspects

Several important tax experts from the private sector in Argentina have already advanced their opinion that this law and its regulations will be undermined by challenges and recourse of unconstitutionality for several reasons:

a) The characteristics that speak of taxing past equity variations,

b) The superposition of this tax with that of Personal Assets, applying a new tax to the same asset,

c) The fact of wanting to tax a tax resident of another country who does not have assets in Argentina,

d) The fact of taxing people without taxable capacity,

e) Discrimination against taxpayers with assets abroad versus assets in Argentina,

f) Among others …

The Insight Trust team has extensive experience in international tax advice, including Trusts, to request more information, a more personalized recommendation, a face-to-face meeting with one of our advisors or a budget, please contact

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