Post by Sapphire Capital on Oct 29, 2008 20:08:59 GMT 4
Argentina: Treaty with Austria terminated
Source: Andrés Edelstein(andres.m.edelstein@ar.pwc.com) + Ignacio Rodríguez (ignacio.e.rodriguez@ar.pwc.com),
Buenos Aires - Price Waterhouse
During the last week of June, the Argentine government sent the formal notification to the Austrian government for terminating the double tax treaty with this country. In accordance with the provisions set forth in article 29 of the treaty, this termination will become effective on January 1 2009.
The double tax treaty with Austria is one of the Argentina's oldest treaties – it was signed at the end of the '70s – and is one of the few Argentine treaties that grant exemptions to the state of residence for certain types of income/assets.
Indeed, in accordance with that convention, i) dividends paid by a company resident of a contracting state, and ii) interest and/or royalties arising in a contracting state (when the payer is that state itself, a political subdivision, a local authority, or a resident of that state) and paid to a resident of the other contracting state shall be taxable only in the first-mentioned state.
Furthermore, when making reference to capital gains derived from the disposal of shares, the convention defines that they shall only be taxable in the state where the issuer company resides.
With respect to tax on wealth, the convention provides that capital represented by shares shall be taxable only in the state of which the company that issued the shares is a resident while capital represented by bonds or debentures shall be taxable only in the state of which the payer of the bonds or debentures is a resident. In view of the above, the Austrian shares and/or bonds held by Argentine residents have not been subject to tax in Argentina.
Since there are significant net worth taxes applicable in Argentina – the corporate minimum notional income tax which consists of a 1% annual levy on all corporate assets, and the personal asset tax which ranges from 0.5% to 1.25% per annum, the government allegedly wanted to prevent Argentine residents from using Austrian structured investments to minimise asset taxes in Argentina, whose yields are additionally benefited from the income tax exemption mentioned above. This seemed to be reason why Argentina denounced a double tax treaty for the first time in its history.
The revocation of the treaty may be significant for some multinationals, international banks, and especially for high-net-worth individuals, who should immediately analyse the potential impact on their tax structures in view of the treaty's termination.
Although according to unofficial sources Austria has already entered into negotiations to preserve a common tax framework for residents of both countries, it is not known yet the position to be adopted by the Argentine government.
Hopefully, our country will agree a new treaty wording in the near future in order not to narrow its treaty network, which is always useful to attract and make efficient bilateral investments.
Source: Andrés Edelstein(andres.m.edelstein@ar.pwc.com) + Ignacio Rodríguez (ignacio.e.rodriguez@ar.pwc.com),
Buenos Aires - Price Waterhouse
During the last week of June, the Argentine government sent the formal notification to the Austrian government for terminating the double tax treaty with this country. In accordance with the provisions set forth in article 29 of the treaty, this termination will become effective on January 1 2009.
The double tax treaty with Austria is one of the Argentina's oldest treaties – it was signed at the end of the '70s – and is one of the few Argentine treaties that grant exemptions to the state of residence for certain types of income/assets.
Indeed, in accordance with that convention, i) dividends paid by a company resident of a contracting state, and ii) interest and/or royalties arising in a contracting state (when the payer is that state itself, a political subdivision, a local authority, or a resident of that state) and paid to a resident of the other contracting state shall be taxable only in the first-mentioned state.
Furthermore, when making reference to capital gains derived from the disposal of shares, the convention defines that they shall only be taxable in the state where the issuer company resides.
With respect to tax on wealth, the convention provides that capital represented by shares shall be taxable only in the state of which the company that issued the shares is a resident while capital represented by bonds or debentures shall be taxable only in the state of which the payer of the bonds or debentures is a resident. In view of the above, the Austrian shares and/or bonds held by Argentine residents have not been subject to tax in Argentina.
Since there are significant net worth taxes applicable in Argentina – the corporate minimum notional income tax which consists of a 1% annual levy on all corporate assets, and the personal asset tax which ranges from 0.5% to 1.25% per annum, the government allegedly wanted to prevent Argentine residents from using Austrian structured investments to minimise asset taxes in Argentina, whose yields are additionally benefited from the income tax exemption mentioned above. This seemed to be reason why Argentina denounced a double tax treaty for the first time in its history.
The revocation of the treaty may be significant for some multinationals, international banks, and especially for high-net-worth individuals, who should immediately analyse the potential impact on their tax structures in view of the treaty's termination.
Although according to unofficial sources Austria has already entered into negotiations to preserve a common tax framework for residents of both countries, it is not known yet the position to be adopted by the Argentine government.
Hopefully, our country will agree a new treaty wording in the near future in order not to narrow its treaty network, which is always useful to attract and make efficient bilateral investments.