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Argentina-Luxembourg

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Update - Tax Treaty between Argentina and Luxembourg

The income and capital tax treaty between Argentina and Luxembourg was signed on 13 April 2019. It is the first of its kind between the two countries

Taxes Covered

The treaty covers Argentina income tax and personal assets tax and covers Luxembourg individual income tax, corporation tax, capital tax, and communal trade tax.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services within a Contracting State through employees or other engaged persons if the activities continue for a period or periods aggregating more than 6 months within any 12-month period.  

Insurance and Re-insurance

Article 7 (Business Profits) includes the provision that profits of an enterprise of a Contracting State derived from insurance and re-insurance activities by insuring property situated in the other Contracting State or persons who are residents thereof at the moment of signature of the insurance contract, may be taxable in that other State, whether or not the enterprise carries on those activities through a permanent establishment situated therein. However, in the absence of a permanent establishment, the tax charged in that other State shall not exceed 2.5% of the gross amount of the premium.

Withholding Tax Rates

  • Dividends - 10% if the beneficial owner is a company that has directly held at least 25% of the paying company's capital throughout a 365-day period that includes the day of the payment; otherwise 15%
  • Interest - 12%, with an exemption for:
    • interest on commercial debt-claims including debt-claims represented by commercial paper resulting from deferred payments for machinery or equipment supplied by an enterprise, except where such interest is paid between associated enterprises;
    • interest on loans of any nature — not represented by bearer instruments — granted on preferential terms, which means the loan is granted by a financial institution of a Contracting State for a period of at least three years and the interest rate is not higher than three points over LIBOR;
    • interest paid in respect of a loan, debt-claim or credit that is owed to, or made, provided, guaranteed or insured by the other Contracting State or the Central Bank, a political subdivision, local authority or export financing agency thereof;
  • Royalties -
    • 3% for royalties paid for the use of, or the right to use, news;
    • 5% for royalties paid for the use of, or the right to use, any copyright of literary, artistic, or scientific work (but not including royalties in respect of any cinematographic films, or films or tapes used for radio or television broadcasting), provided that the beneficial owner is the author or his/her heirs; if not, the rate is 15%;
    • 10% for royalties in all other cases, including payments for the rendering of technical assistance, which is understood as the rendering of customized services involving the application by the provider of any non-patentable specialized knowledge, ability or experience, and not necessarily requiring the transmission of such knowledge to the client.

Note - where the payment of royalties is in relation to the transfer of technology, and the transfer has not been registered in accordance with the domestic laws of the source State, then the withholding rate on such royalties will be 15%.

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 comparable interests if, at any time during the 365 days preceding the alienation, the shares or comparable interests derived at least 50% of their value directly or indirectly from immovable property situated in the other State; and
  • Gains from the alienation of shares, other than the above, that represent the capital of a company that is a resident of the other State, with the tax rate limited to:
    • 10% if the alienator has directly held at least 25% of the company's capital throughout a 365-day period that includes the day of alienation;
    • 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

Argentina applies the credit method for the elimination of double taxation, while Luxembourg generally applies the exemption method. However, Luxembourg applies the credit method in respect of income covered by Articles 10 (Dividends), 11 (Interest), 12 (Royalties), Article 13 (Capital Gains) with respect to shares in resident companies, Article 17 (Entertainers and Sportspersons), and Article 21 (Other Income) with respect to other income not covered by the treaty.

Entitlement to Benefits

Article 28 (Entitlement to Benefits) provides that a benefit under the treaty shall not be granted in respect of an item of income or capital if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purposes of the relevant provisions of the treaty.

MFN Clause

The final protocol to the treaty includes the provision that if Argentina concludes an agreement with another State after the date of signature of the treaty with Luxembourg and such agreement provides for a lower tax rate or more favorable treatment than that provide in Article 7 (Business Profits) with respect to insurance and re-insurance, Article 10 (Dividends), Article 11 (Interest), Article 12 (Royalties), or Article 13 (Capital Gains) with respect to shares in resident companies, then such lower rate or more favorable treatment will automatically apply for the purpose of the Argentina-Luxembourg treaty when the provisions of the agreement with that other State become applicable.

Entry into Force and Effect

The treaty will enter into force once the ratification instruments are exchanged and will apply from 1 January of the year following its entry into force.

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