The Argentine government recently decided to terminate existing tax treaties for the avoidance of double taxation, which it had entered into with Spain, Chile and Switzerland.

Even though the reasons behind this have not been made public, the Double Tax Treaties had been in place for many years and were entered into in order to provide certain fiscal guarantees to taxpayers who carried out economic activities in the affected countries, for example, that a single income would not be taxable by more than one country.

Sharing tax

Under the double tax treaties the signatory countries waived their right to certain taxes (for example, tax on personal assets) and to tax certain earnings, so that only one country imposed the tax, or, alternatively, several countries “shared” the tax, in other words, each country taxed a portion of the total amount due by the taxpayer.

This decision results in the termination of, among others, the exclusion or waiver of the personal assets tax on Spanish, Chilean and Swiss shareholders who are not deemed to have Argentine residence and, indirectly, the termination of such treatment to shareholder residents of Brazil and Uruguay by virtue of the application of the most favoured nation clause of the 1980 Treaty of Montevideo.

Personal assets

In the case of Spain, the termination of the double tax treaty means that Spanish citizens who had invested in Argentina will no longer benefit from a reduced tax rate in the retention of the income tax in connection with their capacity as beneficiaries of interests from loans, royalties, services, etc. Furthermore, as mentioned, Spanish shareholders will now be subject to personal assets tax in connection with their shares or other participation in Argentine companies.

This scenario will most likely require many investors to modify their tax strategies to minimise the effects of these new measures,and prevent them from putting their investments at risk.