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Argentina-Mexico

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Tax Treaty between Argentina and Mexico to Enter into Force

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.

Taxes Covered

The treaty covers Argentine income tax, presumptive minimum income tax, and personal assets tax. It covers Mexican federal income tax.

Residence

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.

Service PE

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.

Hydrocarbon PE

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.

Withholding Tax Rates

  • Dividends - 10% if the beneficial owner is a company directly holding at least 25% of the paying company's capital; otherwise 15% (note - the final protocol to the treaty provides that the reduced rates will not apply with respect to Argentine withholding tax on distributions exceeding accumulated taxable income)
  • Interest - 12%
  • Royalties - 10% for royalties paid for the use of, or the right to use, any copyrights of literary, dramatic, musical, artistic or scientific work, any patents, designs and models, plans, secret formulas or processes, computer programs, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience, as well as for the rendering of technical assistance services; otherwise 15%

Note - A maximum rate of 10% is included in Article 10 (Dividends) for the additional taxation of repatriated profits attributed to a permanent establishment.

Capital Gains

The following capital gains derived by a resident of one Contracting State may be taxed by the other State:

  • Gains from the alienation of immovable property situated in the other State;
  • Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State;
  • Gains from the alienation of shares or other participation rights deriving more than 50% of their value directly or indirectly from immovable property situated in the other State; and
  • Gains from the alienation of shares or participations, other than the above, in the capital or property of a company resident in the other State, with the rate limited to 10% if the direct participation in the capital of the company is at least 25%, otherwise 15%.

Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.

Double Taxation Relief

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.

Limitation on Benefits

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:

  • The company's shares are listed on a recognized stock exchange; or
  • At least 50% of the company's voting rights or shares are directly or indirectly held by one or more individuals resident in a Contracting State and/or other persons incorporated in a Contracting State (the voting rights or shares in such other persons must also be directly or indirectly held by one or more individuals resident in a Contracting State).

Notwithstanding the above, the benefits will be denied if:

  • More than 50% of a company's gross income is paid directly or indirectly to persons that are not resident in either Contracting State; and
  • Such payments are deductible in computing a tax covered by the treaty in the person's state of residence.

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.

Effective Date

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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