On 13 March 2013, Spain and Argentina signed a new convention for
the avoidance of double taxation and the prevention of fiscal evasion
with respect to taxes on income and net worth (the “New
Convention”).
The New Convention replaces the one previously in force, which had
been unilaterally terminated by Argentina on 29 June 2012 and, therefore,
ceased to have effects on 31 December 2012.
The wording of the New Convention is almost similar to that of the
former one. However, there are some novelties, of which the
following are worth highlighting:
-
Article 6 (“Income
from Real Property”): the scope of this article is
extended to include income from real property that directly or
indirectly derives from the ownership of shares or any other rights.
According to this article, the Contracting State where the real estate
is located shall be entitled to tax that income.
-
Article 11 (“Interest”):
the maximum tax rate on interest income is reduced to 12 per cent (in
the former Convention, the maximum rate was 12.5 per cent).
-
Article 12 (“Royalties”):
the maximum tax rate on royalties derived from the use of software is
reduced to 10 per cent (in the former Convention, the relevant rate
was 15 per cent).
-
Article 13 (“Capital
Gains”): the Contracting State where the relevant real
estate is located is granted the right to tax the capital gains
obtained from the transfer of shares of real estate companies.
Additionally, this right is not subject to the general caps
established for capital gains obtained from the transfer of shares of
non-real estate companies (i.e. 10 per cent in cases of participations
of at least 25 per cent in the capital of the companies whose shares
are being transferred and 15 per cent in any other cases).
On the other hand,
coherently with the amendment introduced in Article 6 of the New
Convention (see above), the Contracting State of location of the real
estate is granted the right to tax the capital gains derived from the
transfer of the shares or rights that, directly or indirectly, entitle
the use of the real estate.
-
Article 22 (“Net
Worth”): pursuant to the former Convention, the Contracting
States could not impose any taxes on the net worth formed of shares or
participations in the capital or equity of companies. This restriction
was the main reason why Argentina unilaterally terminated the former
Convention, since it meant that companies resident in Spain that held
shares in Argentinean entities were exempt from the Argentinean Net
Worth Tax (Impuesto sobre Bienes Personales).
With the wording of the
New Convention, Argentina shall be entitled to tax the mere holding by
companies resident in Spain of shares of Argentinean subsidiaries. It
must be pointed out that in Spain legal entities are not subject to net
worth tax.
-
Article 26 (“Exchange
of Information”): the wording of this article has
substantially changed to reinforce, extend and improve the mechanisms
for the exchange of tax information between Spain and Argentina.
-
Protocol to the New
Convention: among other amendments, the most-favored-nation
clause set forth in the former Convention has been removed.
-
Memorandum of
Understanding: together with the New Convention, Spain and
Argentina signed a memorandum of understanding which, in line with the
clauses of other double taxation conventions signed by Spain in recent
years, includes several anti-abuse clauses (limitation of benefits,
beneficial owner clause, etc.), aimed at avoiding the fraudulent use
of the benefits of the New Convention (treaty shopping).
The New Convention will have retroactive effect from 1 January 2013.
Therefore, given that the previous Convention ceased to apply from 31
December 2012, investors will be protected from any damages caused by
the absence of legal mechanisms to avoid double taxation.
With this goal in mind, both countries are expected to move swiftly
through the legal procedures necessary to formally approve the New
Convention.
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