In a newly created and unique tax, Argentina has introduced duties on the export of services between January 1, 2019 and December 31, 2020. The rate is 12 percent with a maximum limit of four Argentine pesos per U.S.$ of exports. Argentine providers of such services are required to calculate and pay the tax through monthly tax returns.
In this Insight, we will consider the practical implications for companies doing business in Argentina. (We will however not discuss the merits of the introduction of this tax: in the authors’ view the exportation of services should be promoted through long-term policies, especially the export value-added services that lead to qualified job creation in the country.)
Legal Basis of the Tax
Law 27,467/2018, published in the Official Gazette of the Republic Argentina (Boletín Oficial de la República Argentina) on December 4, 2018, amended the Argentine Customs Code to include services within the scope of the exports covered by the Customs Code, thus allowing the application of export duties to them. In turn, the law allowed the Executive Power to impose duties on those exports until December 31, 2020.
The Customs Code (Law 22,415/1981) provides for the application of customs duties to the import and export of merchandise, which is generally defined and understood to comprise tangible goods.
The term “merchandise” for customs purposes has also included for several years certain “intangible components,” such as the import of services, copyrights and intellectual property rights. Many technical concerns have been raised regarding this definition, and there has not been a practical application of it.
Now, through the latest reform, the definition of merchandise stated includes “services rendered in the country whose effective utilization or exploitation takes place abroad” (i.e., export of services), and even if some technical concerns remain valid, additional regulations have been rapidly implemented to put into practice the collection of export duties on such services.
According to the statements made by the Treasury Secretary during a press conference and the “whereas clauses” section of the implementing Decree, the government introduced these new duties on exports as a temporary measure. This was considering the need for greater tax collection and the significant increase in the exchange rate of the U.S.$ vis-à-vis the Argentine peso during 2018.
Calculation and Payment Mechanism
Decree 1,201/2019 (the Decree) published on January 2, 2019 and Federal Tax Authorities (Administración Federal Ingresos Públicos, referred to as “AFIP") General Resolution 4,400/2019 (the Resolution) published on January 23, 2019, introduced the procedures for the calculation and payment of the tax.
The Decree established the export duty rate at 12 percent. However, due to the application of a limit equal to four Argentine pesos per U.S.$ exported, the effective rate is less than 12 percent, considering that the foreign exchange rate has recently been around 40 Argentine pesos per U.S.$. For future increases of the foreign exchange rate, the burden of the export duties would decrease in terms of effective percentage.
The duty applies to exported services rendered and invoiced since January 1, 2019, including services originated in contracts or transactions initiated before that date, but rendered since that date.
The exported services are defined as services rendered in the country whose effective utilization or exploitation takes place abroad, and the Decree clarifies that the jurisdiction of immediate utilization of the service must be considered for the purposes of this assessment.
This set of rules follows the definition of exported services that is utilized for value-added tax (VAT) purposes. Consequently, services rendered in the country by an Argentine company to a foreign recipient may now receive one of the following two possible treatments:
- qualify as a service whose utilization takes place in Argentina, and therefore be subject to VAT (typically 21 percent); or
- be considered to have its utilization abroad and thus be subject to these new export duties.
The Resolution establishes that exporters subject to the new duties will have to use the tax authorities’ website application known as the “Tax Accounts System” (Sistema de Cuentas Tributarias) to file their monthly returns.
By clicking on the option “Export Duties Acknowledgement” (Conformación de Derechos de Exportación), a draft return calculated by the tax authorities based on the electronic invoices issued by the exporter will be available on the last day of each month on the website. The taxpayer must file that return from the 10th to 15th business day of the following month by either approving the draft return issued by the tax authorities or amending it.
It is worth noting that the Argentine invoicing regulations require that exports of services are invoiced utilizing electronic “e-invoices.” Such invoices must be submitted for prior authorization by the tax authorities, and thus by the end of each month AFIP will have the information to prepare the draft returns mentioned above.
The payment of the duties must be made within 15 business days in the month following that in which the tax authorities made available the monthly draft return for the taxpayer’s approval. Entities that exported services of less than $2 million in the previous calendar year, however, will have an additional 45-day period to pay the duties, counted from the due date of the return (i.e., the 15th business day).
The payment must be made through the federal tax application Billetera Electrónica AFIP (AFIP Electronic Wallet). Through that application, the exporters will issue a payment voucher (Volante Electrónico de Pago or VEP).
It is important to bear in mind that according to the regulations in force, companies qualifying as micro and small enterprises (as defined in Law 24,467) that export services will only pay duties on the exported amounts that exceed $600,000 in a calendar year.
Foreign companies contracting services from Argentine providers should review and discuss the application of the new export duties and confirm if and how the total cost of the services could be impacted.
On the other hand, resident companies in Argentina should review transactions that are now subject to the tax and observe the compliance procedures recently established.
The following should be taken into consideration:
- Identify cross-border transactions which may present difficulties for their qualification in the scope of the export duty (for example, transactions involving intellectual property rights, year-end transfer pricing adjustments, financial transactions, etc.);
- Check the consistency of the treatment granted for VAT, export duties and income tax withholding purposes;
- Understand if the exceptions to the payment (small companies) or the longer payment terms (export thresholds) apply to particular cases, and confirm the compliance with the requirements to claim such benefits;
- Monitor the development of discussions about the validity and the application of this new and unique type of tax;
- Review the draft returns prepared by the tax authorities in order to identify transactions or amounts that should not be subject to the export duty.
Jose Padilla is Partner, EY Latin American Business Centre (U.K.); Gustavo Scravaglieri is Partner, Pistrelli Henry Martin y Asociados SRL (Argentina); Pablo Baroffio is Senior Manager, EY Latin American Business Centre (U.K.)
This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Member firms of the global EY organization cannot accept responsibility for loss to any person relying on this article.