The income and capital tax treaty between Argentina and Mexico will enter into force on 23 August 2017. The treaty, signed 4 November 2015, is the first of its kind between the two countries.
The treaty covers Argentine income tax, presumptive minimum income tax, and personal assets tax. It covers Mexican federal income tax.
If a company is considered resident in both Contracting States, the competent authorities will determine the company's residence for the purpose of the treaty through mutual agreement. If no agreement is reached, the company will not be entitled to the benefits of the treaty.
The treaty includes the provision that a permanent establishment will be deemed constituted if an enterprise furnishes services in a Contracting State through employees or other engaged personnel if such activities continue for a period or periods aggregating more than 6 months within any 12-month period.
Substantially similar activities carried on in a Contracting State by an associated enterprise will be considered in determining if the period limit has been met.
Article 21 (Hydrocarbons) includes the provision that a permanent establishment will be deemed constituted if an enterprise carries on business consisting of, or relating to, the exploration, production, refining, processing, transportation, distribution, storage or marketing of hydrocarbons situated in the other Contracting State for a period or periods aggregating more than 30 days within any 12-month period.
Substantially similar activities carried on by an associated enterprise will be considered in determining if the period limit has been met.
Note - A maximum rate of 10% is included in Article 10 (Dividends) for the additional taxation of repatriated profits attributed to a permanent establishment.
The following capital gains derived by a resident of one Contracting State may be taxed by the other State:
Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.
Both countries apply the credit method for the elimination of double taxation. Mexico also allows a credit for Argentine tax paid on profits out of which dividends are paid if the beneficial owner holds at least 10% of the Argentine company paying the dividends.
The treaty includes a substantial limitation on benefits article (Article 28). The provisions of the article are summarized as follows.
The benefits of the treaty will only apply for a company incorporated in a Contracting State if:
Notwithstanding the above, the benefits will be denied if:
However, the above limitations will not apply if the competent authorities agree that the company claiming the benefits carries on an active business in a Contracting State, and the conduct of its operations do not have the principle purpose of obtaining the benefits of the treaty.
In any of the above cases, the competent authorities of the Contracting States will consult each other before the treaty benefits are denied.
In addition, the article includes the provision that a tax benefit under the treaty will not be granted if it is established that one of the main purposes of any arrangement or transaction was to obtain a benefit, unless it is granted in accordance with the object and purpose of the relevant provisions of the treaty.
The treaty applies from 1 January 2018. Once in force and effect, the 1997 shipping and air transport agreement between the two countries is terminated.
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