March 2013



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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The information contained in this Newsletter is of a general nature and does not constitute legal advice