Argentina Brief Snapshot

Investing in Argentina Brief Snapshot

January 2014. Buenos Aires, Argentina

I. LatAm in the World Economy

II. Argentina Political and Economic Environment

III. Setting up a Business in Argentina – Legal issues

IV. Different ways to invest in Argentina and the associated tax impact

V. Mining Environment in Argentina

3 I. LatAm in the World Economy

For 2012-2020 many forecasts continue expecting a difficult context in the North and a growth in the South that could speed up changes in the Global Economy

North and South: Projected Gross Domestic Product Growth, 2013-2020 (Percentages)

International Region United Nations OECD Monetary Fund

North 2.5 2.3 2.5 - United States 3 2.3 3.1 - Japan 0.6 1.1 1.4 - Euro Zone …. 1.8 1.2 South 5.6 6.7 6.2 - Latin America and the Caribbean 4.6 …. 4.0 - Africa 4.0 …. 4.8 - Developing Asia 6.5 …. 7.9

Source: GDP projections: United Nations, “United NATIONS Global Policy Model,2012, International Monetary Fund, “World Economic Outlook, Washington, D.C., April 2012, and Organization for Economic Cooperation and Development (OECD), “OECD Economic Outlook , May 2012 Copyright 2013 Deloitte S.A. All rights reserved. I. LatAm in the World Economy

The overall value of imports into the region is expected to rise by 6%,

For 2013, exports from the region are expected to go up by 4.0% in value terms, an improvement compared with the rate of 1.5% recorded in 2012

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of International Monetary Fund (IMF), “World Economic Outlook, Washington, C.C., 2013. Copyright 2013 Deloitte S.A. All rights reserved. I. LatAm in the World Economy

The region showed its strength to face turbulence in the world economy….

. GDP in Latin America and the Caribbean is expected to grow by 3% in 2013, similar to the pace set in 2012.

. The forecast is for uneven weakening of the terms of trade, modest export growth and a larger current account deficit

. Access to external financing remains open despite financial volatility

. Employment and wage growth slows

. Inflation edges up

Source: Economic Commission for Latin America and the Caribbean (ECLAC), “Economic Survey of Latin America and the Caribbean”, 2013

8 ARGENTINA Current Situation

9 What is happening in Argentina today? Previous Governments . Government Economic Vision

Certain Economic . Certain Level of Interventionism Sectors

. Uncertainty of long term horizon

. Confrontative Dialogue Negative Press

+ Unrecognized Achievements - Not assumed Conflicts

1 0 Political Overview

• Cristina Kirchner weakened after 2013´s October elections. Also surgical treatment for a hematoma put her out of action for five weeks. • Controversial minister of internal commerce Guillermo Moreno has been revoked of charge in a way to obtain market flexibility • Argentine President Cristina Fernandez de Kirchner has appointed new cabinet members in an apparent effort to tackle the country's economic crisis. • The president appointed a progressive economist, Axel Kicillof, as Minister of Economics. • The new cabinet chief, Jorge Capitanich, now potentially has president’s backing to seek the coalition’s presidential nomination in 2015.

• All the opponents with real chances to be President are moderate • In the last couple of years, Argentina has lost ground in relation with its regional peers, so it’s probable that the investment boom that will come after the presidential elections of 2015 will push economic growth • The potential looks stronger in terms of energy (there are resources, but they are no exploited) • The growth of the middle class in many countries of the region generates new demands

18.0% 17.5% 15.9% 16.0%

14.0%

12.0% 10.6% 10.5% 10.0% 9.5%

8.6% % % of GDP 8.0%

6.0% 4.2% 3.9% 4.0% 3.6% 2.5% 1.6% 2.0%

0.0%

13 Export Rates

Good Exports - Sectors Good Exports – Country

11% 17% Mercosur Primary Products 24% China and India Agricultural 33% UE Manufactures NAFTA Industrial Manufactures 8% 34% 38% Chile 8% 18% Others 9%

14 Food as a Need Global progress in food consumption 3000 Other 2500 Pulses Roots and Tubers 2000 Meat 1500 Sugar Vegetable oils 1000

Other Cereals keal/person/day 500 Wheat Rice 0 1964/66 1997/99 2030 Year Local Agricultural Commodities Production In million tons 60 54 50 46.2

40 32 30.9 30 24.8 23.5 22 21 20 18 15 10.1 7.6 9.6 10 6 5.8

0 Soybeans Soybean Oil Soybean Corn Wheat Meal 15 Argentina Overview

POLITICAL SITUATION

ECONOMIC SITUATION

EXPECTATIONS

16 Argentina – key sectors

17 Automotive Industry

Facts Opportunities •Increasing regional (Argentina & Mercosur) demand •Possibilities to obtain access to promotion regimes with •Automobile companies in Argentina are working at their provincial governments full capacity •Access to Mercosur market •High costs of car import •Important local Know-How Agribusiness Industry – Food & Beverages

Facts Opportunities •Mature and highly developed agricultural business in •To offer access and assurance of Asian markets the country •Export of business model to less developed markets •Access to international financing (e.g. Eastern Europe) •Growing international demand •Incorporation of industrial technology •Some regulatory issues

19 Infrastructure

Facts Opportunities •Overwhelmed use of transportation infrastructure due •To become as an alternative to Brazilian companies to commercial and agricultural boom in Mercosur adapting their business model •Deficit in rail transport and underground infrastructure •Local players are accustomed to form JVs with foreign •Dominant presence of Brazilian companies (EPC) in the companies industry with sources of funding •Need for capital injection and new technology

20 Winning in a changing world Financial Industry

Facts Opportunities •Solid recovery of financial sector •Certain local entities with underdeveloped potential •Local market with High liquidity •Low level of credit supply for medium term financing •Financial market concentration in short term financing •Regional expansion of financial market •Orientation to consumption and working capital •Advancement of Brazilian entities in the region

21 Oil & Gas Industry

Facts Opportunities •Oil production of mature production areas • Vaca Muerta Shale Oil & Gas •Lack of investment in Oil & Gas exploration activities •Few investment opportunities in developed production •Undeveloped Off-Shore oil production potential due to areas scarce investment in the sector •Joint ventures with junior NOCs for oil exploration and •Repositioning of international players (upstream and exploitation downstream) in Argentina •Joint venture with NOCs for Off-Shore oil exploration •Specific M&A opportunities in the country (e.g. BG, Exxon, Repsol)

22 Power Industry

Facts Opportunities •Lack of investment in generation and transmission •Uninitiated projects due to lack of investment phases •Opportunity in hydroelectric and wind energy •Current supply system working at full capacity (power production industry cut due to excess of maximum electrical capacity) •Possibilities of tariff negotiation in exchange for •Unclear rules for tariff scheme investment plans

23 Points to consider - Advantages

– High average educational level – Low entrance threshold for foreign investor – Economic growth expectation in the region – Investment opportunity in underdeveloped sectors – Infrastructure is underdeveloped due to lack of financial resources, but one of the best in the region

24 Winning in a changing world Setting up a business in Argentina – Legal Issues

25 III. Legal Environment

• Business and investment environment • Argentina has established several regulations in order to promote foreign investment • The regulations provide certain guarantees and are directed to provide foreign investors with adequate protection for their local interests • The principle of equal treatment between domestic and foreign investors is reaffirmed

• Restrictions on foreign investment • Foreign investors may invest in any economic activity in Argentina without any need for prior approval and under conditions equal to those applicable to domestic investors

• No local participation requirements

• Employment of foreigners • There are no restrictions or limited vacancies for the employment of foreigners, as long as the employees comply with immigration regulations.

Argentinian law recognizes various entrepreneurial forms, including companies and other forms of business organization.

Corporations ( sociedad anónima, SA)

Most commonly used Limited liability company ( sociedad de companies responsabilidad limitada, SRL)

Branches

4 4 days documents sent from abroad.

months ! Corporations. the Superintendence with of companyof Registration the foreign Certifying the translated documents in the 2 2 days This Public Translators Association.

Preparing the required documentation to step

3 3 days register the foreign company and notarizing documents by a local notary public might

Filing the required documentation to register for up a corporationsetting the foreign company before the

take Superintendence of Corporations form 21 21 days in 1 / 3

End of the registration of the foreign company with the Superintendence of Corporations

Signing the Bylaws of the corporation in the 1 1 day notary public office.

Preparing the required documentation to 3 3 days register the corporation and notarizing

Corporations theof Superintendence of Registration thewith corporation documents by a local notary public

5 5 days Publication of announcements in the Official Gazette.

Filing the required documentation to register the corporation before the Superintendence of

reserved End of the registration of the corporation with

the Superintendence of Corporations . Different ways to invest in Argentina and the associated tax impact

29 IV. Acquisition of Business in Argentina

Shares Deal Assets Deal

Shares' Transfer Foreign Buyer

Foreign or LATCO Foreign [1] Setting up a New Co Seller Buyer

LATCO Target Co LATCO New Co

LATCO Target Co [2] Asset's Transfer

Direct transfer of stock issued by a LATCO Foreign buyer interested in L.A. Target Co.: Target Co. [1] Set up a New Co/Branch in LATCO [2] Then acquires L.A. Target Co’s assets

Foreign-to-Foreign stock How to acquire (*) Local asset acquisition (**) Local stock acquisition acquisition

Allows the step-up of the tax No step-up in assets tax basis No step-up in assets tax basis Step-up basis for future depreciation. available. available.

15% CIT on net income Seller capital gain tax 35% CIT. 35% CIT. (presumed 90% or real income)

Yes. Through depreciation of Tax deduction N/A N/A fixed assets.

21% over the price of assets VAT N/A N/A transferred for the local seller

Depending where the assets are situated Turnover Tax Transfer tax (Turnover Tax) No N/A applies at an average rate of 3%.

Corporate Taxation Corporate Income Tax 0,35 Tax on Minimum Presumed Income 1% on assets (TOMPI) VAT 0,21 •Tax on credits and debits on banks General Other Indirect taxes accounts: 1.2% •Stamp Tax 1% average Social Security 23%/27%

Transfer Pricing OECD rules. Non member position

% Dividend withholding 0%/35% (ET) + 10% % Royalty Withholding 12.25%/21%/28%/31.5% Repatriation and earnings stripping Other charges: management fees and 0,315 professional service % Interest Withholding 15.05%/35% Financing / Repatriation Arm´s lenght deductibility? Yes Thin capitalization 2:1 ratio

• Transfer pricing rules in force since 1999 • Methods: • CUP, Cost Plus, Resale Price, Profit Split, TNMM (Residual Profit Split not included in domestic legislation) • “Sixth method” for commodities since 2003 • Best method rule; • Adjustment to +/-5% of the median if taxpayer is below/above the range • Tested Party = Argentine affiliate • Transactions with tax haven affiliates are presumed not to be arm's length

• Exchange control procedures for imports of goods and services: • Domestic entities are required to obtain approval from the Argentine government to import goods and certain services (e.g. royalties, know-how, etc.) and are required to make the relevant payments

• Exchange control regulations applicable to exports • New restrictive deadlines apply to exporters converting foreign currency earned from the export of goods into Argentine currency. The deadline depends, inter alia, on the goods exported and the relationships between the parties to the transaction

• Foreign loans and investments may be subject to 30% as a free-interest mandatory deposit – holdback- (“encaje”) on transfers (of foreign currency) received from overseas and reported as “financial loans” repayable within 2 years • Exceptions: Other financial loans settled in the market and use for the purchase of Inventories and/or intermediate goods. Within 90 days those acquisitions should be recorded in the financial statements, under the caption “Inventories”. The average life of no less than 2 years must also be observed.

Working at Mercosur Zone…export duties do not apply in the case of exports to Mercosur countries insofar as products are manufacture in any Mercosur country. As for imports, duties are set by identifying goods by way of the Mercosur Common Code ( Nomenclatura Común del Mercosur, NCM), based on the Harmonized Commodity Description and Coding System (HS) for classifying goods and assigning tariffs.

The customs administration is responsible for levying, collecting and auditing customs duties (both on imports and exports).

Custom Duties and other taxes triggered on Global Trade (products “extra-Mercosur”)

Applicable Taxes Rates Import Duties (*) 0% to 35% Statistical fee 0,50% VAT 21% | 10,5% Additional VAT 20% | 10% Income Tax 6% Turnover Tax 0%~2,25% (*) General Export Duties: 5%

Contact Information

Daniel Varde (FAS Lead Partner) Email: [email protected] Tel: 4321-2756

Marcos Bazaan (M&A Partner) Email: [email protected] Tel: 4321-2774

Ricardo Ferreyra (M&A Tax Partner) Email: [email protected] Tel: 4321-3017

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