Software companies and others in the knowledge-based economy are noting a surprising development in Argentina, where the tax regime benefiting companies in the knowledge-based economy has been put on hold.
Argentina announced this new tax regime in 2019, aiming to promote digital, information and communication technologies and the highly skilled human capital that creates and advances those technologies. With its broad reach, the new law sought to put Argentina at the forefront of the knowledge economy in Latin America.
The regime applies to software companies and, indeed, any companies in the knowledge-based economy, providing substantial benefits including a reduced income tax rate (15 percent against the 30 percent applicable to other corporations), a reduction of social security contributions, and fiscal stability for 20 years, among other benefits. You may be interested in our initial alert about the regime.
According to statutory Law No. 27,506, this new regime was meant to enter into force on January 1, 2020, and further regulations were issued by the Executive Branch, which appointed the Ministry of Production as the implementing authority.
One specific characteristic of this regime − as it was enacted by statute − is that the benefits are fully granted to any entity which complies with the requirements set out in the law, regardless of any specific feature of the entity, such as its size, yearly revenues or business activities. That is, benefits are exactly the same for large, medium or small companies; the law does not differentiate among them in any way, nor does it delegate to the Executive Branch the power to do so.
On January 21, the implementing authority (the Ministry of Production) published in the Federal Register Resolution No. 30/2020, putting on hold the effects of the regime until further notice and overturning all previous implementing regulations that had been issued. The resolution does not include an explanation for this act.
Unofficially, Ministry of Production officials said that a change in the regulations is being studied, with the possible goal of putting in place some limitations on benefits when the beneficiary is a large entity.
It is our understanding that any limitation to these benefits can only be enacted by a Congressional amendment to the statutory law. Any attempt to limit such benefits through an Executive Branch decree or a resolution by the implementing authority could be deemed an overstep that preempts congressional authority. Several legal mechanisms exist to challenge any such regulatory attempts.
This is clearly an ongoing issue in Argentina, and we will keep you posted as events develop. For further information, please contact the author.