Post by Sapphire Capital on Oct 29, 2008 20:06:23 GMT 4
Argentina: Financial trusts: the new tax situation
Source: Andrés Edelstein + Ignacio Rodríguez
ITR -
PricewaterhouseCoopers (Argentina)
Telephone +54 4850 0000
Argentine income tax law (AITL) provides that financial trusts organised in Argentina pursuant to law 24,441 are taxed at the same 35% tax rate as corporations. In this regard, individuals or legal entities acting as trustee are encompassed by the rules concerning administrators of third parties' net worth. Therefore, they are responsible for determining and paying the trust's income tax.
The income tax regulatory decree (the AITL decree) provides that in establishing the taxable net income, profit distributions paid to the participation certificates (certificados de participacion) holders are not deductible (as opposed to interest paid on debt securities issued by the financial trust, which is fully deductible for income tax purposes).
However, if the trust had met all of the requirements established by the AITL decree, it would have been entitled to the benefit of deducting profit distributions (the benefit). This benefit allowed certain financial trusts to minimise the income tax burden through the application of this special deduction.
The abovementioned requirements are, among others:
the sole purpose of the financial trusts should be the securitisation of homogeneous assets consisting of public or private securities or credit rights stemming from financing transactions evidenced in public or private instruments;
the trust securities should be issued and placed under the Argentine public offer law number 17,811 and other regulations issued by the Argentine securities exchange commission;
the homogeneous securitised assets may not be substituted by others after their liquidation or cancellation, except for transitory investments made by the trustee as part of administering the amount to be distributed or allocated towards paying the trust commitments, or in cases involving the replacement of one asset by another because of delinquency or non-compliance;
it is necessary that the trust's total gross profits consist solely of income generated by the trust assets and income stemming from their liquidation or sale, as well as from the transitory financial investments referred to in point c); however, it is admissible for a portion not higher than of 10% of the whole trust's revenue to stem from other transactions undertaken so as to maintain the value of the aforementioned assets.
Although the above benefit used to apply to any financial trust that met the above requirements, through the enactment of decree 1207/2008 the Argentine executive branch has amended the AITL decree and has limited such a benefit that is now available only for financial trusts related to infrastructure works addressed to render public services.
This amendment would imply that profit distributions paid by financial trusts, other than those referred to in the above paragraph, after January 1 2008, would no longer be deductible for income tax purposes.
From the above, although the tax treatment applicable to the participation certificates holders has not been changed, the incremental income tax that would have to be paid by the trust would result in a yield reduction.
Finally, provisions of decree 1207/2008 do not affect the income tax exemption granted to Argentine individuals and foreign beneficiaries on income derived from publicly offered debt securities issued by qualifying financial trusts
Source: Andrés Edelstein + Ignacio Rodríguez
ITR -
PricewaterhouseCoopers (Argentina)
Telephone +54 4850 0000
Argentine income tax law (AITL) provides that financial trusts organised in Argentina pursuant to law 24,441 are taxed at the same 35% tax rate as corporations. In this regard, individuals or legal entities acting as trustee are encompassed by the rules concerning administrators of third parties' net worth. Therefore, they are responsible for determining and paying the trust's income tax.
The income tax regulatory decree (the AITL decree) provides that in establishing the taxable net income, profit distributions paid to the participation certificates (certificados de participacion) holders are not deductible (as opposed to interest paid on debt securities issued by the financial trust, which is fully deductible for income tax purposes).
However, if the trust had met all of the requirements established by the AITL decree, it would have been entitled to the benefit of deducting profit distributions (the benefit). This benefit allowed certain financial trusts to minimise the income tax burden through the application of this special deduction.
The abovementioned requirements are, among others:
the sole purpose of the financial trusts should be the securitisation of homogeneous assets consisting of public or private securities or credit rights stemming from financing transactions evidenced in public or private instruments;
the trust securities should be issued and placed under the Argentine public offer law number 17,811 and other regulations issued by the Argentine securities exchange commission;
the homogeneous securitised assets may not be substituted by others after their liquidation or cancellation, except for transitory investments made by the trustee as part of administering the amount to be distributed or allocated towards paying the trust commitments, or in cases involving the replacement of one asset by another because of delinquency or non-compliance;
it is necessary that the trust's total gross profits consist solely of income generated by the trust assets and income stemming from their liquidation or sale, as well as from the transitory financial investments referred to in point c); however, it is admissible for a portion not higher than of 10% of the whole trust's revenue to stem from other transactions undertaken so as to maintain the value of the aforementioned assets.
Although the above benefit used to apply to any financial trust that met the above requirements, through the enactment of decree 1207/2008 the Argentine executive branch has amended the AITL decree and has limited such a benefit that is now available only for financial trusts related to infrastructure works addressed to render public services.
This amendment would imply that profit distributions paid by financial trusts, other than those referred to in the above paragraph, after January 1 2008, would no longer be deductible for income tax purposes.
From the above, although the tax treatment applicable to the participation certificates holders has not been changed, the incremental income tax that would have to be paid by the trust would result in a yield reduction.
Finally, provisions of decree 1207/2008 do not affect the income tax exemption granted to Argentine individuals and foreign beneficiaries on income derived from publicly offered debt securities issued by qualifying financial trusts