Many will have heard of the legal figure called Trust , either in North American films or more recently with the famous case of the President of Argentina, Mauricio Macri, who incorporated a Trust type figure to protect his heritage and to give greater transparency to his management. The truth is that, although it is a contribution initially made by the Common Law , that is, Anglo-Saxon law, it has taken on a certain relevance in the region in recent years and that is why the Latin American jurisdictions have tried to regulate it with more or less success in recent times.

Now what is the Trust really and how can we define it?

The Trust can be defined as a contract by which a person named Settlor, transfers the ownership of certain assets to another named Trustee (Trustee – who will own the legal property) for him to manage according to the clauses mentioned in said contract in in favor or for the benefit of one or more persons named Beneficiaries (to whom or who will correspond the property for the benefit) , when certain conditions are met or when a term is met.

In this regard, it is important to mention that the 1985 Hague Conference on Private International Law with the aim of ¨ establishing common provisions on the law applicable to the trust and solving the most important problems related to its recognition ¨ defined this as ¨ the legal relations created – by act inter vivos or mortis causa – by a person, the constituent, by placing assets under the control of a Trustee in the interest of a beneficiary or for a specific purpose ¨.

What types of Trust can we find?

The Trust can be qualified if they meet certain characteristics according to the following classification:

• Revocable or Irrevocable: They will be revocable as long as the Settlor, after the assets have been contributed to the Trust’s assets, maintains control or can dispose of them. As opposed to the definition of revocable, the irrevocable will be those where the Settlor who contributed the assets to this patrimony called Trust can no longer dispose of them, but will be waiting for compliance with the provisions of the contract and in a future distribution to
• Discretionary or non- discretionary : Those on which the Trustee maintains discretion on when and how to make distributions to the Beneficiaries , or who more generically administers the assets of the Trust at its discretion in compliance with the provisions of the contract, will be discretionary, while Non-discretionary will be the one where the distributions to the Beneficiaries are obligatory by contract or if the beneficiaries can decide the distributions made to them without the Trustee being able to determine them.
• With Trustees professionals or individuals Trustees unlicensed: Here lies a difference in who is the trustee, ie if it has a professional license to practice the role of Trustee and in this case can be administered as such several Trust , be regulated by financial authorities and comply with minimum guarantees as well as local regulations. Conversely, a private trustee of a particular Trust does not have a license, regulation or guarantees. In the latter case, the Trustee are called the Private Trust Company.
• Split Trust: This is a structure that includes two Trusts, one revocable with the right to withdraw capital and one irrevocable where all profits are allocated. This more sophisticated structure works very well when a Settlor wishes to defer income while retaining access to invested capital.
• Finally and in the particular cases of the Trust incorporated under the law of the United States, we can find the Trust called ¨ US Trusts ¨ or the ¨ S. Foreign Trusts ¨: The first classification distinguishes those over which some American court has jurisdiction (a condition that occurs whenever the Trust is subject to United States law) and whenever all relevant decisions are made by a North American person, when at least one of the two conditions mentioned above does not exist , the Trust qualifies as foreign and therefore will have no tax obligations in the United States.

Now what happens to this figure in the region? Next, we will focus on two jurisdictions to explain what the legal treatment that the Trust receives in them will be the Argentine Republic and the Eastern Republic of Uruguay.

Trust Regulation in Argentina

We can say when mentioning Argentina that we are perhaps talking about the country in Latin America that today has the richest jurisprudence and regulations on the matter. Many of the judgments issued by judges in that country have been cited both in doctrinal analyzes carried out by lawyers and in judicial rulings issued in the region.

In this regard, we can begin by mentioning Opinion No. 23 of the year 2000 issued by the AFIP (tax authority in Argentina), which was later ratified by the courts, and by which it was understood that the Trust- type structure alleged by the accused, where This was the Settlor – Beneficiary of the contributed assets and where he was the one who manages the assets like Trustee , it is legally valid but in turn it is fiscally transparent since obviously there was no real detachment of the patrimony in favor of the Trustee.

On the other hand, there is a renowned case, the ¨ Eurnekian ¨ case , which in short is based on the sale, by the businessman of the same name, of the shares issued by the company ¨ Cablevisión ¨ (well-known television provider company by cable in Argentina), to a company incorporated in the state of Delaware in the United States called ¨TCI International Holding Inc¨.

Said amount received is decided to contribute to two Trusts constituted by the businessman as Settlor, abroad, consigning them in their tax returns as donations. In the first instance, the Tax Court and the Chamber agreed with Eunekian that he should not pay income tax and personal property in Argentina for the proceeds of this alienation while it was in the assets of the Trusts incorporated by him. . However, the Court ultimately understood that due to the fact that the businessman had not completely lost control over the assets deposited in the Trusts, had to pay taxes on earnings and personal property for the periods in dispute.

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

Said reform mentions in its article 71 number d) that ¨ The profits obtained by trust , trusts, private interest foundations and other similar structures constituted, domiciled or located abroad, as well as any contract or arrangement concluded abroad or under a Foreign legal regime, whose main object 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 financial assets remain in his possession and / or are managed by said subject (including, among others, the following cases: 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, etc.

Considering the aforementioned cases and the regulations cited above, we can conclude that in Argentina there is a recognition of the figure of the Trusts and that there are certain principles in this regard that must be mentioned:

• The Trusts Revocable or Irrevocable are a valid way of structuring equity;
• The irrevocable Trust where the Settlor does not maintain control will not be subject to taxes in that country (and in case it is considered a US foreign trust it will not be in the United States either);
• The Beneficiaries will pay taxes only when receiving benefits from the Trust, and should not they even include the assets of the Trust on your tax return.

Finally, and as to what taxes will be paid by the Beneficiaries of the Trust , it is important to mention that, once they receive the income produced by the Trust, it will be necessary to pay attention to the general principles in the matter that, in most of the countries of the region, assume that the Beneficiary will pay the rate applicable to income tax on the portion of the received that qualifies as income or accumulated profit, and not on the portion that qualifies as initial capital of the Trust .

Specifically in Argentina, this situation is regulated through the law on earnings, which stipulates in its article 140 subsection b that ¨ Profits from abroad obtained as a beneficiary of a trust or equivalent legal figures. For the purposes of this subsection, all distributions made by the trust or equivalent figure will be considered earnings, unless evidence to the contrary demonstrates that they did not obtain benefits and do not have accumulated profits generated in periods prior to the last compliment, included in both cases capital gains and other enrichments. If the taxpayer proves in the manner indicated that the distribution exceeds the aforementioned benefits, only the proportion of the distribution that corresponds to the latter will be considered profit… ¨

Therefore, whenever a distribution is made to the Beneficiaries of a Trust , it will be treated from the tax point of view as earnings until the accumulated earnings are exhausted, the Beneficiaries themselves having to verify that it is not a profit. In the same way, it will be necessary to prove if part of this distribution is partly profit and partly not.

Regulation of the Trust in Uruguay

Unlike what happens in Argentina, in Uruguay there is no regulation as specific with respect to the figures of the Trust as they are conceived by Anglo-Saxon law, if there is law 17,703 that regulates trusts in Uruguay, but which it gives them a more business-oriented approach than Trust as a form of family estate planning.

Therefore, it is necessary to adhere to what is established in the Uruguayan regulations regarding taxes, more specifically to the Personal Income Tax, Title 7 Ordered Text of 1996 , and apply said regulations in relation to the jurisdictions of nullity. or low taxation (BONT), which are defined in article 7 of Title 7 as ¨… those countries or jurisdictions that do not meet the requirements of the minimum effective tax rate or levels of collaboration and transparency… ¨ .

The aforementioned Title is regulated by Decree 148/007 which expresses in its article 6 bis first paragraph the rule of fiscal transparency for BONT entities, by which capital income and capital increases will be automatically assigned to the individuals who participate of its capital, expanding said rule to resident entities (and also individuals) who verify the status of current Beneficiaries of non-resident trusts.

Even the article covers the possibility that there are no current beneficiaries in non-resident trusts, establishing that in that case the income will be assigned to the settlor ( Settlor ) until they are received by the Beneficiary.

We can then say that, based on the provisions of the aforementioned regulations, whenever a Trust is incorporated into a BONT jurisdiction, that is, its Trustee is considered BONT, the tax transparency rule will apply to the Beneficiaries of said Trust , these being fiscally obligated as soon as the entity receives capital income or capital increases and that in the event that the Beneficiaries are discretionary, who will assume the fiscal obligation until they actually receive the benefits of the Trust will be the Settlor.

Therefore, in opposition to the rules applied to BONT entities, the Trust incorporated in non-BONT jurisdictions will have a treatment similar to that of Uruguayan legal entities, thus deferring the profits obtained by the Trust until they are effectively distributed to their Beneficiaries.