Argentina – Amendments to Estate and Gift Tax

Javier CanosaPartner, Canosa Abogados

Last year, the Province of Buenos Aires had reinstated the Estate Gift Tax (“Estate and Gift Tax”) in its Jurisdiction, creating thus this new and controversial tax in the Province of Buenos Aires.
Following, Law No. 14,200 (the “Law”), which amends the Tax Code of the Province of Buenos Aires was published in the end of 2010 in the Official Gazette of the Province of Buenos Aires

These new amendments to the Estate and Gift Tax are especially burdensome because (i) the tax allowance is reduced to the absurd since it now applies to transfers of assets with a monetary value of at least fifty thousand pesos -AR$ 50,000- (approximately US$ 12,315) which does not even currently cover the costs of a garage parking in the Province of Buenos Aires, and (ii) on the other hand, it rises the rates so these can reach up to a 21.25%. This Estate and Gift Tax could be considered confiscatory bearing in mind the current applicable tax rates.

Some of the relevant aspects of the Estate and Gift Tax are the following:

Firstly, the Law provides for a tax allowance that, as mentioned above is very low, bearing in mind current prices of real estate in Argentina. The previous regime provided that transfers of property which, without including deductions, exemptions or exclusions, did not exceed the amount of three million pesos ($3,000,000) were excluded of the Estate and Gift Tax. Since the enactment of the Law, such limited is established in fifty thousand pesos ($50,000), or two hundred thousand pesos ($200,000) where the beneficiary is the parent, child or spouse of the transferor; in both cases, very low thresholds considering the former allowance of three million pesos and current prices of properties in Argentina.
The applicable tax rates have been increased from 5% or 10.5% depending on the tax bracket to rates ranging from 6.325% to 21.92%.
The following are exempted from the Estate and Gift Tax as of the enactment of the Law:
Transmission by death of the homestead, when it takes place in favor of the spouse, parent and/or children including adopted children, or spouses of the previously mentioned, of the urban property entirely destined for the housing of the decedent or his family, provided that it is the only property and its assessed value does not exceed one hundred thousand pesos ($ 100,000) –US$ 25,000 approximately-.
Transmission by death of a company, whatever may be its form of organization, including individual operations, whose total income charged in the previous fiscal period does not exceed thirty million pesos ($ 30,000,000) when it takes place in favor of the spouse, parent and/or children including adopted children, or spouses of the previously mentioned, and they maintain the effective exploitation of the company during the five (5) years following the death of the deceased, except that the acquirer dies within this term. Otherwise they must pay the tax reassessments for the years remaining to qualify for the exemption.
However, in the case of companies that at the time of the transmission have not completed one fiscal year since the start of its activities, the amount to be considered shall be five million pesos ($5,000,000).

Additionally, Section 78 of the Law provides for the extinction of debts under the Estate and Gift Tax accrued until 31st December 2010.
Another amendment introduced by the Law is the elimination, for real estate, of the legal presumption that the market value of the property could not exceed the amount of assessed valuation increased by thirty percent (30%).
The Law also facilitates the valuation of individual personal property and property of household use (movable assets), as assessed valuation will no longer be executed by an expert as established by the previous regime. Currently under the law, such value shall be determined by the cost value of such property, and if it cannot be determined, such value shall be of five percent (5%) of the assessed value of the real estate to which such movable assets belong.
The Law came into force on January the 1st 2011