Tax Management International Forum Comparative Tax Law for the International Practitioner Tax Traps for the Unwary In this issue of the International Forum, leading experts from 17 countries and the European Union provide their per- spectives on aspects of domestic tax law that can be most troublesome for foreign investors and businesses operating across borders. Although individuals and businesses operating internationally are generally prepared to comply with for- eign tax regimes, sometimes even the most astute taxpayer can be caught off guard. Such tax traps range from the treat- ment of cross-border share transfers to general anti-avoidance rules to notional interest deductions, service permanent establishments, and more. Volume 38, Issue 4 DECEMBER 2017 www.bna.com THE TAX MANAGEMENT Contents INTERNATIONAL FORUM is designed to present a comparative study of typical international tax law problems by FORUM members who are distinguished practitioners in major industrial countries. Their scholarly discussions focus on the THE FORUM operational questions posed by a fact pattern under the statutory and TOPIC and QUESTIONS decisional laws of their respective FORUM country, with practical 4 ARGENTINA recommendations whenever Guillermo O. Teijeiro and Ana Lucı´aFerreyra appropriate. 5 Teijeiro y Ballone, Buenos Aires and Pluspetrol, Montevideo, Uruguay THE TAX MANAGEMENT INTERNATIONAL FORUM is AUSTRALIA published quarterly by Bloomberg Elissa Romanin & Andrew Korlos BNA, 38 Threadneedle Street, 12 MinterEllison, Melbourne London, EC2R 8AY,England. Telephone: (+44) (0)20 7847 5801; BELGIUM Fax (+44) (0)20 7847 5858; Email: Howard M. Liebman and Vale´rie Oyen [email protected] 18 ௠ Copyright 2016 Tax Management Jones Day, Brussels International, a division of Bloomberg BNA, Arlington, VA. BRAZIL 22204 USA. 22 Henrique de Freitas Munia e Erbolato and Pedro Andrade Costa de Reproduction of this publication Carvalho by any means, including facsimile Tax lawyers, Sa˜o Paulo transmission, without the express permission of Bloomberg BNA is CANADA prohibited except as follows: 1) Mark Dumalski and Noah Bian Subscribers may reproduce, for local 27 Deloitte LLP, Ottawa and Calgary internal distribution only, the highlights, topical summary and DENMARK table of contents pages unless those Christian Emmeluth pages are sold separately; 2) 34 EMBOLEX Advokater, Copenhagen Subscribers who have registered with the Copyright Clearance Center and FRANCE who pay the $1.00 per page per copy By Johann Roc’h and Cyrille Kurzaj fee may reproduce portions of this 37 C’M’S’ Bureau Francis Lefebvre, Paris publication, but not entire issues. The Copyright Clearance Center is located GERMANY at 222 Rosewood Drive, Danvers, Pia Dorfmueller Massachusetts (USA) 01923; tel: 47 (508) 750-8400. Permission to P+P Po¨llath + Partners, Frankfurt reproduce Bloomberg BNA material may be requested by calling +44 (0)20 INDIA 7847 5821; fax +44 (0)20 7847 5858 or 51 Ravi S. Raghavan e-mail: [email protected]. Majmudar & Partners, Mumbai www.bna.com ITALY 58 Carlo Galli Board of Editors Clifford Chance, Milan Managing Director JAPAN Andrea Naylor Eiichiro Nakatani and Akira Tanaka Bloomberg BNA 62 Anderson Moˆri & Tomotsune, Tokyo London Technical Editor MEXICO Nick Webb 67 Jose´Carlos Silva and Juan Manuel Lo´pez Dura´n Bloomberg BNA Chevez, Ruiz, Zamarripa y Cia, S.C., Mexico City London THE NETHERLANDS Acquisitions Manager − Tax Martijn Juddu Dolores Gregory 70 Loyens & Loeff N.V., Amsterdam Bloomberg BNA Arlington, VA 2 12/17 Copyright ஽ 2017 by The Bureau of National Affairs, Inc. TM FORUM ISSN 0143-7941 SPAIN 82 Eduardo Martínez-Matosas and Luis Cuesta Gómez-Acebo & Pombo Abogados SLP, Barcelona SWITZERLAND Walter H. Boss and Stefanie Maria Monge 88 Bratschi Wiederkehr & Buob Ltd., Zu¨rich UNITED KINGDOM James Ross 92 McDermott Will & Emery UK LLP, London UNITED STATES Peter A. Glicklich and Heath Martin 97 Davies Ward Phillips & Vineberg LLP, New York APPENDIX—EU PERSPECTIVE 105 Pascal Faes Antaxius, Antwerp 113 FORUM MEMBERS and CONTRIBUTORS 12/17 Tax Management International Forum Bloomberg BNA ISSN 0143-7941 3 Tax Traps for the Unwary Topic Taxpayers doing business across border are generally prepared to comply with foreign tax regimes that may differ from their own, but sometimes even the most astute taxpayer can be caught off-guard by unfamiliar regulations or unusual interpretations of pro- visions they think are familiar. Such tax traps may not be immediately obvious to outsiders and they can prove costly. Questions Please identify and discuss the top four or five issues arising in your country that face cross-border businesses/foreign investors and that: (a) may be unexpected or unfamiliar to non-home country taxpayers; and (b) involve significant cost and/or compliance effort. While income taxation issues should generally be the main focus of your response, issues that arise in the context of other taxes (for example, VAT) can also be covered if they satisfy the criteria in (a) and (b). 4 12/17 Copyright ஽ 2017 by The Bureau of National Affairs, Inc. TM FORUM ISSN 0143-7941 ARGENTINA Guillermo O. Teijeiro and Ana Lucı´aFerreyra Teijeiro y Ballone, Buenos Aires and Pluspetrol, Montevideo, Uruguay I. General Remarks margin for a foreign service provider, making the pro- vision of advisory services to Argentine residents The Argentine income tax system is not particularly highly unattractive from a business viewpoint. Based complex nor does it have any peculiar features that on the foregoing, gross-up provisions are generally might be troublesome for foreigners entering the agreed upon by the parties to a service agreement, market (whether trading with or investing in Argen- thus, in practice, increasing the price to the Argentine tina). However, a combination of unique rules and service receiver by around 45% (the effective with- practices geared towards combating specific avoid- holding rate with grossing-up rises to as high as ance situations and an absence of rules or precedents 45.98%). capable of addressing sophisticated cross-border eco- Reduced withholding tax rates are available in the nomic transactions give rise to concrete traps for the case of agreements that qualify as transfer of technol- unwary. Some of these are presented in this paper. ogy agreements under the Transfer of Technology Law (TTL), if certain statutory requirements are met. Pay- II. Cross-Border Services: Think ‘No (Tax) Common ments made under registered transfer of technology Sense’ and You Will Find the Answer agreements are subject to a much lower 21% effective tax rate, when the services for which they are made Under the Argentine Income Tax Law (ITL), foreign qualify as technical assistance, engineering or con- persons (nonresident individuals and foreign domi- sulting services not available in Argentina. The tax ciled companies) are taxed only on their Argentine- rate rises to an effective 28% for other payments source income; this is intended to comprise income under the TTL, subject to certain requirements. arising from: (1) capital, assets or rights situated, placed or exploited in Argentina; and (2) the perfor- The Argentine tax system does not provide a statu- mance of any civil or commercial activity or personal tory or regulatory definition of technical assistance. work in Argentina regardless of the place of execution Instead, for that purpose, the ITL resorts to the TTL of the relevant contract. and its implementing regulations, and complemen- tary regulations issued by the competent authority Article 12, paragraph 2 of ITL, which is designed to thereunder, the National Institute of Industrial Prop- prevent the erosion of the Argentine income tax base, erty (INPI). expressly provides for an exception to the general rule 1 that services are sourced in the place where they are Neither the TTL nor its implementing regulations rendered. Under this rule, fees or other compensation expressly refer to technical assistance, engineering derived from the provision to an Argentine resident of and consulting services not available in Argentina. technical, financial or any other type of advice from Decree 580/81 does define ‘‘technology’’ as ‘‘any knowl- abroad are deemed to be sourced in Argentina. edge that is necessary for the manufacturing of a product or the provision of a service.’’ This is a critical issue for foreign service providers and Argentine clients because, in addition to the fact Additional guidance is to be found in resolution that the Article 12 paragraph 2 rule represents a de- INPI 328/05, which defines ‘‘technology’’ in negative parture from the typical source rule for services, the terms. Pursuant to this resolution, technical assis- applicable tax rate may extremely high, and, generally, tance, consulting and the licensing of know-how re- no double taxation relief will be available in the for- lated to financing, sales and marketing unconnected eign service provider’s country of residence. to a local ‘‘productive activity’’ do not qualify as tech- nology. Although the position is somewhat ambigu- ous, the authors’ understanding is that, to qualify as A. Elevated Withholding Tax Rates ‘‘technology,’’ the assistance must relate to the bottom- Unless otherwise provided, advisory services that fall line productivity of the business. within the scope of Article 12 of the ITL are subject to Article 5 of Resolution 328/05 sets out the condi- an effective withholding tax rate of 31.5%. Bearing in tions that must be fulfilled for technical assistance, mind