Argentina adds further operations as subject to PAIS Tax
Argentina’s PAIS Tax (or Tax for an Inclusive and Solidary Argentina) is a tax that applies to the direct or indirect purchase of foreign currency.
The maximum applicable tax rate of this tax is 30 percent. Digital services that are already subject to VAT remain taxed at 8 percent.
More specifically, the PAIS Tax applies to those transactions where residents directly acquire foreign currency through the official exchange market, or when they do so indirectly by making payments abroad, mainly through the use of credit cards, or by international transfers from Argentina.
The PAIS Tax applies to the total amount of the transaction through which residents directly or indirectly acquire foreign currency through the official exchange market.
On July 24, 2023, the national government issued Decree 377/2023, which included new operations subject to the PAIS Tax. It is now applicable to the indirect purchase of foreign currency for making payments related to imports of goods and services.
Until the issuance of Decree 377/2023, the PAIS Tax did not apply to international transfer payments made by local companies for imports of goods and services, except for those payments made through credit cards.
New operations subject to PAIS Tax in detail
The new operations included in the taxable fact of the PAIS Tax, to which the PAIS Tax is now applied, are as follows:
Payments related to the import of services: rate of 25 percent. These include the import of services of telecommunications, financial and accounting, IT, information services, charges for the use of intellectual property, research and development, and professional services, among others.
Payments related to freight and transportation services: rate of 7.5 percent. This encompasses the acquisition of freight services abroad and other transportation services for import or export of goods, or their acquisition in the country when the services are provided by non-residents.
Payments for the import of general goods: rate of 7.5 percent. This applies to the importation of all goods, except for the importation of specific products related to oil, energy, supplies and intermediate goods directly linked to products within the basic food basket, and other goods related to energy generation, as to be determined by the Secretariat of Energy.
The PAIS Tax also applies to payments related to temporary imports and those imports made in the Free Trade Zones of Tierra del Fuego, Antarctica, and the South Atlantic Islands.
Payments for imports of “luxury” items: rate of 30 percent. For the importation of certain goods considered sumptuary or luxury items, the maximum rate of the PAIS Tax is applied. This has been in effect since 2022 and remains unchanged.
The goods included in this category are high-end automobiles and motorcycles, private jets with a value exceeding $1 million, recreational use watercraft, beverages such as champagne, whiskey, liquors, and other spirits priced over 50 dollars per liter; caviar; and pearls, diamonds, and other precious stones. To check the goods subject to this tax, please refer to Annex I of Decree 99/2019.
Advance payment of PAIS Tax
By issuing General Resolution AFIP 5393/2023, the Federal Tax Authority (AFIP for its acronym in Spanish) has established an advance payment regime for the PAIS Tax applicable to operations related to the importation of goods.
The advance payment must be made at the time of formalizing the importation destination and will be calculated based on the declared FOB value when documenting the import operation before Customs. The advance payment must be 28.5 percent for operations subject to a 30 percent PAIS Tax, and 7.125 percent for operations subject to a 7.5 percent PAIS Tax.
After the importation is carried out, when accessing the foreign exchange market to make the payment corresponding to the imported goods, the PAIS Tax to be paid should be calculated. The advance payment made previously will be considered as a tax credit, and the difference between the advanced payment and the actual PAIS Tax should be paid to the AFIP.
Although we find it questionable, it is important to note that the final PAIS Tax to be paid should be determined at the moment when the payment is made for the importation to the foreign supplier, considering the exchange rate at that time, and not considering the exchange rate at the time of making the advance payment.
It is essential to highlight the uncertainty that this tax and the advance payment generates since the importer cannot determine the final cost in Argentine pesos, as it is impossible to anticipate the exchange rate at the moment of making the payment.
Possible unconstitutionality of the new PAIS Tax
Finally, after conducting a thorough analysis of the legislation and regulatory framework governing operations subject to the PAIS Tax, we understand that Decree 377/2023 has expanded the taxable events provided in subsection (a) of Section 35 of Law 27.541 appointing new taxable events that are not contemplated in that subparagraph of the law, and that do not qualify under the taxable fact described in the Law 27.541.
Specifically, subsection (a) of Section 35 of Law 27.541 establishes the taxable event as the purchase of foreign currency for savings or without a specific purpose.
In this regard, Decree 377/2023 has included within the scope of subsection a) of Section 35 of Law 27.541, and thus subject to the PAIS Tax, import operations of goods and services that do have a specific purpose, such as the purchase and importation of goods and services for their application to production or commercial processes.
Therefore, we believe that Decree 377/2023 has established taxable events that were not foreseen in Law 27.541, which means a violation of the rule of law principle, and also infringes upon the principle of contributive capacity.
It remains to be seen whether importers will take legal action and challenge the constitutionality of Decree 377/2023. However, we believe that there are valid legal grounds to question the constitutionality of the Decree.
If you need more information or have further inquiries regarding this matter, please feel free to contact Augusto Mancinelli.