ARGENTINA Law and Practice Contributed by: Juan McEwan and Agustín Lacoste, McEWAN
Therefore, if structured correctly, revenues derived from the assets held in trust will not be subject to tax in the jurisdiction of the trustee. The trustee becoming the legal owner of the assets will ensure that neither PAT nor income tax will be levied on the settlor for such assets and their revenues. However, it must be stressed that there has been an attempt to change this situation by taxing the “rights inherent in the capacity as beneficiary of a foreign trust” with the differential rate of PAT (Section 25, paragraph 3 of Law 27.541). Nevertheless, it seems that the way in which this provision has been included does not change the tax consequences for the ben - eficiary of an irrevocable discretionary trust for the following reasons: • the provision implies an excess in the exercise of taxing rights by Argentina; • the provision infringes the “ability to pay” principle ( principio de capacidad contributiva ) – until they receive actual distributions, beneficiaries of an irrevocable discretionary trust have no ability to pay PAT; and • in any case, the value of the beneficiary’s rights would be zero. However, this provision has not yet been regulated. Therefore, the use of an irrevocable trust – ignoring the fact that the transfer in trust that must be made by the settlor to a third party (trustee) generally generates resistance in individuals in countries such as Argen - tina (due to various cultural factors) – may give rise to benefits concerning both taxes and successions. Irrevocable Fiduciary Structures It seems probable that there will be an increase in the implementation of irrevocable fiduciary structures for different reasons. First, high net worth families have entered the Tax Amnesty (Law 27.260), under which they declared the possession of national or foreign currency and other property located in the country and abroad. Consequently, high net worth individuals have since been affected by the increasing tax burden (regarding PIT, PAT and, recently, the ASE) and will seek tax-planning alternatives to ease this burden.
All these factors will encourage high net worth families to analyse estate-planning alternatives. The efficiency of any structure will depend on the eventual terms of these upcoming amendments to tax laws. 3.2 Recognition of Trusts Argentina has not signed the Hague Convention of 1 July 1985 on the Law Applicable to Trusts and on Their Recognition. However, court precedents have recognised the existence and enforceability of for - eign trusts, provided that Argentine public order is not infringed (mainly, the forced heirship rules). This was then included in Section 2651 (e) of the CCCN. Argen - tina therefore recognises and respects foreign trusts. 3.3 Taxation of Trusts, Foundations and Similar Entities Located in Other Jurisdictions The tax consequence of a fiduciary of a foreign trust being an Argentine resident is that the trust would be considered a taxable entity for Argentine tax pur - poses. The tax consequences of a beneficiary of a foreign trust being an Argentine resident will appear exclusively upon receiving distributions from the trust (provided it is an irrevocable and discretionary trust). See 3.1 Types of Trusts, Foundations or Similar Enti- ties for more on the attempt to change this situation. The tax consequence of either the beneficiary or the settlor of a foreign trust serving as a fiduciary is that the transparency rules would apply (Section 130 of the ITL) and the assets in the trust would be included in the settlor’s PAT return. 3.4 Tax Consequences of Fiduciary and Beneficiary Roles As mentioned in 3.3 Taxation of Trusts, Foundations and Similar Entities Located in Other Jurisdictions , where either the beneficiary or the settlor of a foreign trust also serves as fiduciary, the tax consequence is that the transparency rules under Section 130 of the ITL apply, and the trust’s assets must be included in the settlor’s PAT return. In practice, this is gener - ally managed by ensuring the fiduciary role is held by someone independent of the donor and beneficiaries wherever possible – often by delegating it to a pro - fessional trustee – or, where that is not feasible, by documenting clear limits on the fiduciary’s discretion.
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