Tax Affidavit
Income Tax On International Transport
I. Taxability of International Transport. Profit from Argentine Source.
The Income Tax Law levies taxes on profits from an Argentine sources earned by subjects residing abroad.
The Argentine source criterion is basically related to the place where the assets are located or the activity that produces them is performed; in the case of transport, the source is determined by the places where it takes place.
This rule is difficult to apply to transport, since it is carried out outside jurisdictional waters or even in places not subject to the jurisdiction of a sovereign country.
Moreover, there is the difficulty of attributing to profits certain expenses or proportional rights to various factors of distance, such as affected capital and others; and, finally, the problem caused by the existence of activities beyond any jurisdiction (international waters) and the complication in determining what the deductible expenses would be.
Motivated by the complexity of such factors to certainly establish the Argentine source income, the legislator established an absolute (which does not admit evidence to the contrary) presumption (estimate) of Argentine source profit in the business of International Freights, between the Argentine Republic and foreign countries, carried out by companies not established in the country.
This presumption consists, as previously mentioned, in establishing, without allowing evidence to the contrary, that ten percent (10%) of the amounts paid by companies located or established in the country to foreign ship-owners for time or voyages charters constitute net income from Argentine source (Section 10 of the Income Tax Law).
To this 10% that is established as a presumption of net income from an Argentine source, the 35% tax rate established in section 102 of the Income Tax Law must be applied to carry out the withholding as a single and definitive payment.
The effective tax rate ends up being 3.5% of freight charges.
Regarding the amount that should be applied, the following cases could arise:
FREIGHT OR PASSANGERS
AMOUNT ON WHICH IT APPLIES
National port to foreign port without transshipment.
Total Amount.
National port to foreign port,with direct line.
Total amount including transshipment.
National port to foreign port with transshipment, without direct line.
Amount up to the transshipment port, unless the carrier shall be the same, in which case it applies to the entire amount.
FREIGHT OR PASSANGERS
AMOUNT ON WHICH IT APPLIES
National port to foreign port without transshipment.
Total Amount.
National port to foreign port,with direct line.
Total amount including transshipment.
National port to foreign port with transshipment, without direct line.
Amount up to the transshipment port, unless the carrier shall be the same, in which case it applies to the entire amount.
II. Joint Liability
The regulation establishes the joint liability of agents or representatives by stating the following: “The agents or representatives in the Argentine Republic, of the companies mentioned in this section, shall be jointly liable with them for the payment of the tax.”
Joint liability in tax issues is the obligation that the law establishes for the named responsible party to pay the corresponding tax on behalf of the third party they represent, either with funds from the third party they manage, or at the request of the tax authority, with their own funds and assets. This responsibility exists regardless of whether the subject liable for the tax (the foreign represented company) shall reimburse them or not.
III. International Treaties. Tax Exemption. Tax Affidavit.
In cases in which there shall be treaties entered into between Argentina and the countries in which those foreign companies shall be located, establishing tax exemption, this presumption shall not apply
-and, consequently, the tax shall not be applicable-, expressly stating that: “The presumptions mentioned in the preceding paragraphs shall not apply in the case of companies established in countries with which tax exemption has been or shall be determined under international conventions or treaties”.
Hence, the strategic importance of AFFIDAVIT.
a. List of countries with Double Taxation Avoidance Agreement or international treaties
The list of countries with which Argentina has in force a Double Taxation Avoidance Agreement is officially published in the web of AFIP (Administración Federal de Ingresos Públicos), where in the technical sheet it is possible to check effect dates, implementation data and other information.
The list can be consulted in the following: link:
https://www.afip.gob.ar/convenios-internacionales/materia/convenios-para-evitar-la-doble- imposicion.asp
There are also other types of treaties such as the so-called “exchange of reversal letters” through which some countries that have agreed on tax treatment regarding International Transport.
In the same link it can be verified the countries with which Argentina has this type of agreement. A detail of the signed Agreements or Treaties is included, in order to verify verify the different activities
included in special treatments under different taxes.
b. Means of proving the status of beneficiary companies (TAX AFFIDAVIT)
In order to prove the status of beneficiary companies entitled to the tax exemption established in the Double Taxation Avoidance Agreements, in the case of companies not established in the country dedicated to the maritime, air or river transport of passengers or goods, the former General Tax Authority, current AFIP [Federal Administration of Public Revenue], issued General Resolution 2066 in 1978, which established the requirements that agents or representatives must meet.
Agents or representatives in Argentina of companies engaged in maritime, air or river transport of passengers or goods between Argentina and any other country, incorporated in countries with which Double Taxation Avoidance Agreements have been concluded regarding income from such activities, must request the following documentation in order to prove the beneficiary status of the represented company:
“If the activity is carried out by capital or personal companies (including those companies in which the respective State is a party): certification issued by the competent authority of the country with which the agreement has been concluded, stating that the partnership is established in accordance
with the laws of that country, that its headquarters and central administration are located in its
territory and that it is the direct beneficiary (as an owner or charterer, as applicable) of the profits derived from the freight, tickets or rental of the corresponding ship or aircraft”.
The nationality of the vessel and the port of registration should be included in that certification. Such documentation must also be endorsed in all cases, by the corresponding Argentine consulate and subsequently legalized.
The agents or representatives mentioned in said article shall keep it in their possession in order to demonstrate the origin of the franchise and thus justify their non-intervention as income tax withholding agents.
Likewise, Circular 1070/1978 of the General Tax Authority clarifies the following:
(1) The documentation mentioned in Section 1 of General Resolution 2066 may be replaced by a sworn statement certifying the existence of the aforementioned documentation or the facts to which it refers.
(1) La documentación indicada en el artículo 1° de la Resolución General 2066 podrá ser reemplazada por un testimonio donde conste la existencia de la documentación aludida o los hechos a los que la misma se refiere.
This sworn statement must be issued by a Notary Public or a person authorized by the legislation of the respective country to certify such documents. It must be legalized by the Notaries Public Association or a similar official body in the corresponding country, without prejudice to the legalization process before the respective consulate. Essentially, this corresponds to what is commonly known in the industry as TAX AFFIDAVIT.
(2) While in the case of regular shipping lines (Liner Services) or air transport, the documentation related to each ship or aircraft should be requested only once and shall remain valid as long as the facts it certifies do not change, when other ships or aircraft are incorporated into these lines, the corresponding documentation for each of them must also be requested, and it shall also remain valid until the facts stated therein are modified.
For non-regular services (Tramp Services), the Agent shall request the mentioned documentation to the represented vessel, and they may certify a copy of it by a Notary Public for record-keeping purposes in their files. In the case of a subsequent verification by the AFIP, such documentation may be requested from another related agency that has previously operated the same vessel. In such cases,
it is also suggested to certify a copy of the documentation by a Notary Public and filed.
