RARTP Results in New Tax Value of Assets, Determined by "Revaluation Factor"
Valuation Impacts, the Law Introduces RARTP
The 2017 Argentine tax reform introduced an option for the “revaluation of assets regime for tax purposes” or RARTP. Under RARTP, the new tax value of assets will be determined by applying a “revaluation factor,” as established in the Law, to the tax value originally determined in each year or period of the asset’s acquisition or construction. Particularly for corporate income tax purposes, this approach addresses and partially corrects distortions in the taxpayer’s tax financial statements caused by inflation. Furthermore, taxpayers have the option to adjust the tax base of the assets used in their income-generating activities.
Companies may need to hire a third-party valuation firm to determine the value of property qualified as fixed assets hire an independent, third-party valuation firm. Independent valuation firms, like Valuation Research Group (VRG) and its Argentine affiliate, R. Biasca & Associates, are already performing independent valuations of eligible assets including:
- Immovable assets (real estate) not accounted for as inventories
- Immovable assets (real estate) accounted for as inventories
- Fixed assets (except automobiles)
- Shares, quotas, and other participations in the capital of companies and corporations
- Mines, quarries, forestry, and similar assets
- Intangible assets
- Other assets, except inventories and automobiles
Companies Should Apply a Sense of Urgency
Multinational entities conducting business activities, investing or planning to invest in Argentina need to be aware of the impact of these changes and may need to take immediate steps to address the tax changes. Due to the significance of the amendments, taxpayers need to evaluate potential effects on their current operations and how their Argentine business is structured.
An Overview of Argentina’s Tax Reform
The government of Argentina enacted comprehensive tax reform (Law No. 27,430, Decree 1112/2017 – 29 December 2017) that became effective on January 1, 2018. The changes are aimed at promoting investment and competitiveness, moving Argentina towards a more equitable, efficient, modern tax system, and may create opportunities for multinationals or companies looking to invest in Argentina. The Law amends the Argentine income tax law (for both corporations and individuals) and introduces a revaluation regime meant to address the distortions caused by the high inflation experienced in Argentina over the last decade.
The tax reform changes include:
- Corporate income tax rates
- Dividend withholding tax
- Taxation of certain financial investments
- Indirect capital gains taxation
- Thin capitalization rules
- The definition of a permanent establishment
- Transfer pricing
- Fiscal transparency rules
- Value-added tax (VAT) on digital services
- Refund of VAT credit balances
- Revaluation of assets
- Social security contributions
Depreciation and Tax Base Adjustments
The adjustments will affect the tax base of the assets listed above and may be depreciated during the remaining years of asset life, which in no case may be less than five years. The adjustment to the tax base of immovable assets that are not accounted for as inventories and intangible assets may be depreciated during a term at 50 percent of their remaining life, which in no case may be less than ten years. Specific limitations on depreciation apply when the assets are sold within the next two tax years.
Those who elect the RARTP regime will be subject to a special tax levied on the amount of the adjustment to the tax base. The rate varies depending on the type of asset:
- Immovable assets not accounted for as inventories – 8%
- Immovable assets accounted for as inventories – 15%
- Shares, quotas and other participations in the capital of companies and corporations – 5%
- Other assets – 10%
In addition to the RARTP adjustment, the tax base of the assets will be adjusted to consider the effects of inflation as of January 1, 2018.
U.S.-based companies with operations in Argentina are strongly encouraged to contact a VRC valuation professional to help assess the benefits of considering RARTP. In partnership with our Argentine-based international affiliate partner, R. Biasca & Associates, we can provide a comprehensive solution that efficiently uses the benefits of RARTP.