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Tax in Argentina: VAT essentials

The Legal Latin America Argentina – The Clients Guide to the best Law firms, top Lawyers, Attorneys, Advocates, Solicitors and Barristers in Buenos Aires, Argentina.

Scope and Rates

What supplies are liable to VAT?

The Argentinean value-added tax (VAT), is tax-based on the value-added method. It is applied following the subtraction method on a financial basis of tax against tax.

VAT is due on:

the sale by VAT taxpayers of movable property located in Argentina
work, leasing and services specified in the law, provided they are performed in Argentina
the final importation of movable property and
the use or exploitation in Argentina of services which are supplied by non-residents (i.e. import of services).

For VAT purposes, the concept of taxable “sale” includes:

sales and other transfers for consideration of movable property located in Argentina (payment in kind, allocation of property on the liquidation of a company, contribution to a company)
the incorporation of movable goods produced by the taxpayer in the case of leasing and rendering of services exempt or excluded from taxation
transfers of movable goods which are attached to the soil at the time of the transfer, provided they have their own individuality and represent goods in trade for the taxpayer
the removal of movable property by the owner for his personal use or consumption
transactions carried out by commission agents, consignees and other who sell or buy personal property in their own name but on behalf of third parties.

Under the VAT system, tax is levied at each stage of the manufacturing and distribution process on a non‑cumulative basis. The accumulation of tax is avoided through the deduction of VAT invoiced to the entity. The entity pays VAT on the total amount invoiced in each monthly tax period, but it is entitled to recover the input VAT that was invoiced to the entity during the same period. If, in any tax period, the credit for input VAT is higher than the amount of VAT due on output, the entity is not entitled to a refund (unless the refund is related to exports); rather, the excess is credited against future VAT liabilities.

What is the standard rate of VAT?

The standard rate of VAT is 21 percent.

Are there any reduced rates, zero rates, or exemptions?

There is a reduced rate of 10.5 percent for certain goods and services, including:

sales or imports of cattle and sheep and other derivatives which are fresh or frozen as well as of fruits and vegetables fresh or frozen under certain conditions
imports of certain capital goods included in the tariffs list of the Common Nomenclature of MERCOSUR
certain supplies of services related to the soil and farming activities
certain constructions relating to dwelling houses
interest when the loans are provided by certain financial institutions
transport services supplied by taxi and other means of transport if the distance travelled is over 100 km
specified supplies of newspapers and periodicals
medical services in specific cases.

There is an increased rate of 27 percent for certain services:

telecommunication services, except radio broadcasting and services rendered by Encotel or news agencies
the supply of gas or electrical power, except public illumination
the supply of current water and sewage services including draining and cleaning of undrained wells, with certain exemption.

Exempt services:

services rendered by the State, provinces, municipalities and institutions belonging thereto
medical services in specified cases
transportation of persons and freight, including international transportation
transport supplied by taxis if the distance travelled is less than 100 km
financial placements and services in those cases listed in the law (cash deposits with financial institutions, loans made between financial institutions, negotiable bonds publicly offered under Law 23,576)
services proper of directors, controllers and members of boards of stock corporations
the letting of immovable property relating to dwelling houses and to farming, the letting of immovable property with monthly rents less than ARG1,500 and, subject to conditions, relating to certain other services, except for conferences, meetings, and similar events.

Exempt goods: imports and sales of

books
newspapers and periodicals (retail distribution)
shares, bonds and securities
planes constructed and destined for the transportation of passengers and/or freight, and ships for the exclusive use in commercial activities or for defense and security
exports of goods and services are zero-rated.

What are the other local indirect taxes beside VAT?

turnover tax
excise taxes
tax on bank accounts
municipal taxes
stamp tax.

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Registration

Who is required to register for Argentinean VAT?

If businesses make taxable supplies in Argentina through a permanent establishment they will be required to register and account for local VAT.

Are there penalties for not registering or late registration?

There are penalties for failure to file tax returns based on the general terms fixed by the tax administration.

Is voluntary VAT registration possible for an overseas company?

No. Under Argentinean VAT legislation it is not possible for a non-resident entity to voluntarily register in Argentina and act as an established entity.

Are there any simplifications that could avoid the need for an overseas company to register for VAT?

VAT registration is not possible without a permanent establishment in Argentina. If the company (permanent establishment) performs activities in the country, VAT registration is mandatory.

Does an overseas company need to appoint a fiscal representative?

Only in a few cases (for example international transport), in order to apply for VAT refund.

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VAT grouping

Is VAT grouping possible?

No.

Can an overseas company be included in a VAT group?

N/A.

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Returns

How frequently are VAT returns submitted?

Taxpayers are required to submit VAT returns on a monthly basis.

Are there any other returns that need to be submitted?

Yes, returns covering turnover tax and excise tax.

If a business receives a purchase invoice in foreign currency, which exchange rate should be used for VAT reporting purposes? (e.g. central bank’s exchange rate applicable on the date of the invoice)

The latest closing day exchange rate published by the “Banco Nacion” (national bank) should be used.

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VAT recovery

Can a business recover VAT if it is not registered?

No, except few cases (for example international transport). See section 2

Does your country apply reciprocity rules for reclaims submitted by non-established businesses?

No.

Are there any items that businesses cannot recover VAT on?

There are certain items that businesses cannot recover VAT on. For example:

Exempt supplies: where VAT relates to both taxable and exempt supplies, you need to make an apportionment (pro rata rule).
Automobiles: amounts paid on the purchase, import, or rent (including leasing contracts) of automobiles can be claimed as tax credit only if the cost of acquisition, import or market price is equal or less than ARG20,000 (VAT net). If the value exceeds that limit, the tax credit can be only claimed up to this limit. When the automobiles have for the buyer the character of inventory or a key operational fixed asset (such as cars) this limitation will not be applicable. The restriction to compute the tax credit related to maintenance, repair and use of automobiles, which can be deductible with no limit, was lifted.
Business entertainment: VAT on services rendered by bars, restaurants, hotels, garages, clothes (except uniforms), is not recoverable.

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International Supplies of Goods and Services

How are exports of goods and services treated?

Exports of goods and services are included in the scope of VAT, but they are taxed at a zero rate. This means VAT is not levied on the output, but VAT paid on inputs may be recovered through tax refunds, which the taxpayer may request after shipping the goods.

Goods supplied and services performed abroad are not subject to tax.

How are goods dealt with on importation?

When goods are imported into Argentina, import VAT and customs duties must be paid before the goods are released from customs’ control.

How are services which are brought in from abroad treated for VAT purposes?

Services rendered and loans granted from abroad for which utilization is made in Argentina (import of services) by Argentinean VAT payers are taxable in the country.

In such cases, the local taxpayer must self-assess the VAT payment in the month immediately after the taxable event is completed, and will compute the VAT credit in the following month. This will be a pass-through cost for the local company so long as it is registered for local VAT purposes.

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Invoices

Is a business required to issue tax invoices?

Yes.

What do businesses have to show on a tax invoice?

Layout of invoices is strictly regulated.

A taxpayer is required to issue an invoice for each taxable transaction performed. If this requirement is not complied with, the purchaser is not entitled to the VAT credit otherwise arising from the purchase.

Invoices and similar documents corresponding to transactions made by a registered taxpayer with another registered taxpayer must show separately the relevant VAT. Transactions made by a registered taxpayer with a final consumer or a small taxpayer must not show separately the corresponding VAT.

Tax invoice should contain the following data:

date of issue
a sequential invoice number
taxpayer identification number (CUIT) and customer taxpayer identification number
supplier’s name and address
customer’s name
the quantity and nature of the goods/services supplied
unit price (exclusive of any VAT)
rate of any discounts (if not included in the unit price and if applicable)
the VAT rate applicable
the total amount price (including VAT)
issue authorization code or Electronic authorization code.

Can businesses issue invoices electronically?

Yes, it is mandatory for certain activities and optional for all.

Is it possible to operate self-billing?

No, it is not possible.

Can a business issue VAT invoices denominated in a foreign currency?

Yes it can. In this case the exchange rate must be displayed in the invoices.

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Transfers of Business

Is there a relief from VAT for the sale of a business as a going concern?

Under Argentinean law, TOGC is not subject to VAT if it is done within the framework of a tax-free reorganization as provided by art. 77 of the Income Tax Law.

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Options to Tax

Are there any options to tax transactions?

Individuals and companies engaged in small business activities and whose gross turnover does not exceed a certain threshold may be subject to a simplified regime (Monotributo) that combines income tax and VAT.

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Head Office and Branch transactions

How are transactions between head office and branch treated?

There are no special rules for VAT, since both are considered as different taxpayers for VAT purposes.

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Bad Debt

Are businesses able to claim relief for bad debts?

No.

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Anti-Avoidance

Is there a general anti-avoidance provision under VAT law?

In the absence or an invoice or similar document or were the price is less than the market value, this market price is taken as the taxable base.

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Penalty Regime

What is the penalty and interest regime like?

There are certain penalties for failing to fulfill formal obligations.

The penalty for failing to pay VAT due varies between 50 percent and 100 percent of the unpaid VAT.

In case of fraudulent practices, besides fines ranging from two to ten times the unpaid taxes, imprisonment can be imposed in certain cases.

Compensatory interest is at present 3 percent rate.

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Tax authorities

Tax audits

How often do tax audits take place?

Audits take place on a random basis or when a VAT recovery request is filed.

Are there audits done electronically in your country (e-audit)? If so, what system is in use?

No.

Advance rulings and decisions from the tax authority

Is it possible to apply for formal or informal advance rulings from the (indirect) tax authority?

It is only possible to apply for a formal advance ruling. If the taxpayer applies for a formal ruling, the opinion of the tax authority is binding and must be applied.

Are rulings and decisions issued by the tax authorities publicly available in your country?

Yes, they are to be found at: http://biblioteca.afip.gob.ar/

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Miscellaneous

In your country, are there unique specific indirect tax rules (regimes) that differ from standard indirect tax rules in other jurisdictions?

Sales of goods from the mainland to the special customs area are considered an export. Hence, refunds are possible.

Any activity carried out in the ex Territorio Nacional de Tierra del Fuego is exempt from national taxes.

Are there indirect tax incentives available in your country (e.g. reduced rates, tax holidays)?

Exemption for certain localizations (VAT and municipal tax).

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Immigration to Argentina

Immigration lawyer Buenos Aires Argentina attorney law firm

Support and control of immigration

Since its unification as a country, Argentine rulers intended the country to welcome immigration. Article 25 of the 1853 Constitution reads: The Federal Government will encourage European immigration, and it will not restrict, limit or burden with any taxes the entrance into Argentine territory of foreigners who come with the goal of working the land, improving the industries and teach the sciences and the arts. The Preamble of the Constitution, more generously, dictates a number of goals (justice, peace, defense, welfare and liberty) that apply “to all men in the world who wish to dwell on Argentine soil”. The Constitution incorporates, along with other influences, the thought of Juan Bautista Alberdi, who expressed his opinion on the matter in succinct terms: “to rule is to populate”. The legal and organizational precedents of today’s National Migrations Office (Dirección Nacional de Migraciones) can be found in 1825, when Rivadavia created an Immigration Commission. After the Commission was dissolved, the government of Rosas continued to allow immigration. Urquiza, under whose sponsorship the Constitution was drawn, encouraged the establishment of agricultural colonies in the Littoral (western Mesopotamia and north-eastern Pampas). The first law dealing with immigration policies was Law 817 of Immigration and Colonization, of 1876. The General Immigration Office was created in 1898, together with the Hotel de Inmigrantes (Immigrants’ Hotel), in Buenos Aires. The liberal rulers of the late 19th century saw immigration as the possibility of bringing people from supposedly more civilized, enlightened countries into a sparsely populated land, thus diminishing the influence of aboriginal elements and turning Argentina into a modern society with a dynamic economy. However, immigrants did not bring only their knowledge and skills. In 1902, a Law of Residence (Ley de Residencia) was passed, mandating the expulsion of foreigners who “compromise national security or disturb public order”, and, in 1910, a Law of Social Defense (Ley de Defensa Social) explicitly named ideologies deemed to have such effects. These laws were a reaction by the ruling elite against imported ideas such as labor unionism, anarchism and other forms of popular organization. The modern National Migrations Office was created by decree on February 4, 1949 under the Technical Secretariat of the Presidency, in order to deal with the new post-war immigration scenario. New regulations were added to the Office by Law 22439 of 1981 and a decree of 1994, but the current regulations are the Law 25871 of 2004 and the decree 616 of 2010.

Features of immigration

The majority of immigrants, since the 19th century, came from Europe, mostly from Italy and Spain. Also notable were Jewish immigrants escaping persecution, making in Argentina the highest Jewish population in Latin America, and the 7th in all the world. The total population of Argentina rose from 4 million in 1895 to 7.9 million in 1914, and to 15.8 million in 1947; during this time the country was settled by 1.5 million Spaniards and 1.4 million Italians,[citation needed] as well as Poles, Russians, French (more than 100,000 each), Germans and Austrians (also more than 100,000), Portuguese, Greek, Ukrainians, Croats, Czechs, Irish, British, Dutch, Scandinavians, and people from other European and Middle Eastern countries, prominently Syria and Lebanon. Argentine immigration records also mention immigrants from Australia, South Africa and the United States.[citation needed] All these immigratory torrents made Argentina the second country with the most immigrants, with 6.6 millions, second only to the USA with 27 millions, and ahead of countries such as Canada, Brazil, Australia, etc.[1][2] Most immigrants arrived through the port of Buenos Aires and stayed in the capital or within Buenos Aires Province, as it still happens today. In 1895, immigrants accounted for 52% of the population in the Capital, and 31% in the province of Buenos Aires (some provinces of the littoral, such as Santa Fe, had about 40%, and the Patagonian provinces about 50%). In 1914, before World War I caused many European immigrants to return to their homeland in order to join the respective armies, the overall rate of foreign-born population reached its peak, almost 30%. A significant number of immigrants settled in the countryside in the interior of the country, especially the littoral provinces, creating agricultural colonies. These included many Jews, fleeing pogroms in Europe and sponsored by Maurice de Hirsch’s Jewish Colonization Association; they were later termed “Jewish gauchos”. The first such Jewish colony was Moïseville (now the village of Moisés Ville). Through most of the 20th century, Argentina held one of the largest Jewish communities (near 500,000) after the USA, France, Israel and Russia, and by far the largest in Latin America (see History of the Jews in Argentina). Argentina is home to a large community from the Arab world, made up mostly of immigrants from Syria, Lebanon and Israel. Most are Christians of the Eastern Orthodox and Eastern Catholic (Maronite) Churches, with small Muslim and Jewish minorities. Many have gained prominent status in national business and politics, including former president Carlos Menem, the son of Syrian settlers from the province of La Rioja. (see Arab Argentine). The Welsh settlement of Argentina, whilst not as large as those from other countries, was nevertheless one of the largest in the planet and had an important cultural influence on the Patagonian Chubut Province. Other nationalities have also settled in particular areas of the country, such as Irish in Formosa and the Mesopotamia region, the Ukrainians in Misiones where they constitute approximately 9% of the population.[5] Well-known and culturally strong are the German-speaking communities such as those of German-descendants themselves (both those from Germany itself, and those ethnic Germans from other parts of Europe, such as Volga Germans), Austrian, and Swiss ones. Strong German-descendant populations can be found in the Mesopotamia region (especially Entre Ríos and Misiones provinces), many neighborhoods in Buenos Aires city (such as Belgrano or Palermo), the Buenos Aires Province itself (strong German settlement in Coronel Suárez, Tornquist and other areas), Córdoba (the Oktoberfest celebration in Villa General Belgrano is specially famous) and all along the Patagonian region, including important cities such as San Carlos de Bariloche (an important tourist spot near the Andes mountain chain, which was especially influenced by German settlements). Other nationalities, such as Spaniards, although they have specific localities (such as the centre of Buenos Aires), they are more uniformly present all around the country and form the general background of Argentine population today.

Legacy of immigration

Argentine popular culture, especially in the Río de la Plata basin, was heavily marked by Italian and Spanish immigration. Post-independence politicians tried to steer Argentina consistently away from identification with monarchical Spain, perceived as backward and ultraconservative, towards relatively progressive national models like those of France or the United States. Millions of poor peasants from Galicia arriving in Argentina not only did little to alter this position but also immigrated to Argentina because of it, steering clear of the United States and Britain. Italian influence is more visible. Lunfardo, the jargon enshrined in tango lyrics, is laden with Italianisms, often also found in the mainstream colloquial dialect (Rioplatense Spanish). Common dishes in the central area of the country (milanesa, fainá, polenta, pascualina) have Italian names and origins. Immigrant communities have given Buenos Aires some of its most famous landmarks, such as the Monumento de los Españoles (Monument of the Spaniards). Ukrainians, Armenians, Swiss and many others built monuments and churches at popular spots throughout the capital. Argentina celebrates Immigrant’s Day on September 4 since 1949, by a decree of the Executive Branch. The National Immigrant’s Festival is celebrated in Oberá, Misiones, during the first fortnight of September, since 1980. There are other celebrations of ethnic diversity throughout the country, such as the National Meeting and Festival of the Communities in Rosario (typically at the beginning of November). Many cities and towns in Argentina also feature monuments and memorials dedicated to immigration. There are also Immigrant’s Festivals (or Collectivities Festivals) throughout the country, for example: Bariloche, Berisso, Esperanza, Venado Tuerto, and Comodoro Rivadavia have their own Immigrant’s festivals. These festivals tend to be local, and they are not advertised or promoted nationally like the festivals in Rosario and Oberá.

Immigration in the recent times

Besides substantial immigration from neighboring countries, during the middle and late 1990s Argentina received significant numbers of people from Asian countries such as Korea (both North and South), China and Vietnam, which joined the previously existing Sino-Japanese communities in Buenos Aires. Despite the economic and financial crisis Argentina suffered at the start of the 21st century, people from all over the world continued arriving to the country, because of their immigration-friendly policy and other reasons. According to official data, between 1992 and 2003 an average 13,187 people per year immigrated legally in Argentina. The government calculates that 504,000 people entered the country during the same period, giving about 345,000 undocumented immigrants. The same source gives a plausible total figure of 750,000 undocumented immigrants currently residing in Argentina. In April 2006, the national government started the Patria Grande plan to regularize the migratory situation of undocumented immigrants. The plan attempts to ease the bureaucratic process of getting documentation and residence papers, and is aimed at citizens of Mercosur countries and its associated states (Bolivia, Brazil, Chile, Colombia, Ecuador, Paraguay, Peru, Uruguay and Venezuela). The plan came after a scandal and a wave of indignation caused by fire in a Buenos Aires sweatshop, which revealed the widespread utilization of undocumented Bolivian immigrants as cheap labor force in inhumane conditions, under a regime of virtual debt slavery.

The proven Buenos Aires – Argentina lawyer professionals at the Kier Joffe law firm have experience working with foreign clients involved in all kind of cases in Argentina. Buenos Aires Argentina attorney professionals are knowledgeable in almost all the practice areas of law, to service its international cases in Buenos Aires Argentina. International clients will have the confidence of knowing that the case is being handled by an experienced and knowledgeable Buenos Aires  lawyer in Argentina.

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Immigration Law Argentina

Immigration Law Argentina: Argentina at the forefront of immigration policy

The country’s immigration law is serving as a model for the region

BUENOS AIRES, Argentina – Argentina is at the forefront of immigration policy in South America. Immigration Law Argentina

Through Law 25,871, which was issued in 2003 and considers migration a human right, the country has been promoting immigrant participation in society and fostering regional inclusion.

“It’s not the people who should be at the service of the state. It’s the state that should be at the service of the people,” said Martín A. Arias Duval, the director of the National Department of Immigration (DNM). “Therefore, all public policies are beginning to shift toward the recognition of rights.”

Two key initiatives are the Patria Grande program, which regularized the legal status of more than 200,000 foreigners between 2006 and 2010 and the creation of the DNM, which is focused on serving immigrants.

The law recognizes migration as an “essential and inalienable” right. It also provides for “equal access for immigrants and their families to the same protections, support and rights of citizens, particularly with regard to social services, public goods, education, health, justice, labor, employment and social security.”

Argentine legislation, which provides immigrants with the right to vote in municipal elections, has served as an inspiration for neighboring countries such as Brazil, which is considering a new immigration law.

“The Argentine law provides guidelines that promote not only the human rights of immigrants but also the integration between countries of the region,” said Paulo Illes, director of the Center for the Human Rights and Citizenship of Immigrants (CDHIC), which is headquartered in São Paulo. “It’s not just a law, it’s an immigration policy.”

The Argentine law is very different from the law currently on the books in Brazil, which is the Alien Statute of 1980, according to Illes.“That statute is guided by what the immigrants cannot do, such as join unions,” he added. “The Argentine immigration law is affirmative, as it’s based on the principle of promotion.”A focus on integrationThe current Argentine immigration law substituted the Videla Law, which was passed in 1981 and addressed the immigration issue from a perspective of national sovereignty and security.“At that time, even though the region’s governments collaborated with each other, there was a lot of mistrust. In fact, Argentina was about to go to war with Chile in 1978,” Duval said. “Now, we no longer analyze migratory patterns from a national security standpoint but rather in terms of integrating the immigrants into the society that is receiving them.”Communities form bonds

There are a total of 1,805,957 foreigners living in Argentina – accounting for 4.5% of the overall population – according to the most recent National Census, which was conducted in 2010.

The Paraguayan community is the fastest-growing immigrant population. Between 2001 and 2010, it experienced a 69% increase, reaching 550,713, according to the International Organization for Migration (IOM).

“The Paraguayan community has some of the deepest roots in Argentina,” said Ezequiel Texidó, the IOM’s regional representative in Buenos Aires. “We see a lot of mixed marriages between Paraguayans and Argentines.

There are also a significant number of immigrants from Bolivia (345,272), Chile (191,147), Peru (157,514), Uruguay (116,592) and Brazil (41,330).

However, due to the economic crisis, the number of foreigners has remained stable. There was only a 0.3% increase between 2001 and 2010, according to the IOM.

An example for the region

In 2002, Argentina, Brazil, Paraguay, Uruguay, Bolivia and Chile signed the Residency Agreement, which came into effect in 2009.

The agreement recognizes the right of the citizens of signatory countries to establish residency freely in the territory of other signatory countries.

The agreement was an important step toward free movement within the bloc, said Helion Povoa Neto, coordinator of the Interdisciplinary Center for Migration Studies (NIEM), at the Federal University of Rio de Janeiro.

“These citizens receive temporary residency, which after two years can be converted into permanent residency, provided they can show ties with the country [of destination],” he said.

There was a delay in implementing the agreement because Paraguay only ratified it in 2009. Prior to that, Argentina had implemented the agreement unilaterally.

“We encourage neighboring countries to adapt their regulations to recognize Argentine immigrants and to reciprocally offer them the same rights we grant their citizens,” Duval said.

Argentina signed a bilateral agreement with Brazil, whereby any Argentine citizen can directly receive permanent residency, bypassing the period of temporary residency, and vice versa.

“We also signed an agreement with Brazil regarding the connected regions along our borders,” Duval added. “It allows an Argentine to hold residency in Argentina and work in Brazil, and vice versa, without the need to establish residency in the other country.”

These agreements strengthen the union between the two countries, Duval added.

“Easy access to legal residency even helps in the fight against human trafficking,” he said.

The proven Buenos Aires – Argentina lawyer professionals at the Kier Joffe law firm have experience working with foreign clients involved in all kind of cases in Argentina. Buenos Aires Argentina attorney professionals are knowledgeable in almost all the practice areas of law, to service its international cases in Buenos Aires Argentina. International clients will have the confidence of knowing that the case is being handled by an experienced and knowledgeable Buenos Aires  lawyer in Argentina.

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Argentina Litigation Attorneys Buenos Aires Litigation Lawyers Law Firm

Argentina Litigation Attorneys in Buenos Aires

TheArgentina Litigation Attorneys professionals of Kier Joffe work on a joint basis with companies and individuals on preventive measures for minimizing or eliminating the costs of legal and arbitration proceedings. In cases of conflict, Kier Joffe advises its litigation clients on the most adequate settlement. This task is carried out by the Buenos Aires litigation lawyers professionals becoming acquainted with the needs and policies of clients and applying Kier Joffe’ technical knowledge and vast experience in complex litigation matters.

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The Buenos Aires litigation attorney professionals of Kier Joffe understand that the legal capacity of its attorneys is vital to the continued success and growth of the firm and its litigation clients. The Buenos Aires litigation lawyer professionals of Kier Joffe are selected with careful consideration of both professional and personal skills, and great emphasis is placed on continued education as well as other forms of academic participation including management programs and litigation education courses, both in Argentina and abroad.

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Buenos Aires Litigation Attorney Committed to Clients

The Buenos Aires litigation attorney professionals of Kier Joffe concentrate on the importance of each litigation client, but Kier Joffe is also integrated by professionals specialized in different practice areas with both local and international legal experience. Organized in teams, Kier Joffe constantly works to improve the legal knowledge of its Buenos Aires litigation lawyer team as well as the level of service required to be able to offer clients an immediate response and reliable and solid assistance.

Established Buenos Aires Litigation Lawyer Professionals

Kier Joffe Has structured its practice to be able to participate in a wide range of legal matters including litigation. The academic and professional expertise of its Buenos Aires litigation attorney professionals enables Kier Joffe To provide legal advice to clients as well as proactive solutions to their distinctive and individual litigation needs. Kier Joffe’ Buenos Aires litigation lawyer professionals play an important role in counselling both domestic and foreign companies and representing companies in commercial disputes during arbitration and litigation.

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All Kier Joffe’ lawyers and litigators are bilingual. Many of the Buenos Aires litigation lawyer professionals have completed graduate and postgraduate study programs abroad, as well as having worked in law firms in both the United States and Europe. This allows the Buenos Aires litigation attorney professionals of Kier Joffe to communicate with foreign clients effectively and interpret litigation needs more efficiently.

The proven Buenos Aires – Argentina lawyer professionals at the Kier Joffe law firm have experience working with foreign clients involved in all kind of cases in Argentina. Buenos Aires Argentina attorney professionals are knowledgeable in almost all the practice areas of law, to service its international cases in Buenos Aires Argentina. International clients will have the confidence of knowing that the case is being handled by an experienced and knowledgeable Buenos Aires  lawyer in Argentina.

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Elias Kier Joffe
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Best Litigation Attorneys Argentina, Top Litigation Lawyers Buenos Aires, International Litigation Law Firm in Buenos Aires, Argentina

Best Litigation Attorneys Argentina, Top Litigation Lawyers Buenos Aires, International Litigation Law Firm in Buenos Aires, Argentina

 

INSOLVENCY, REORGANIZATION AND BANKRUPTCY LAW IN ARGENTINA: AN OVERVIEW

I. Introduction and General Characteristics

A. Introduction

The current federal bankruptcy law for the Republic of Argentina (“Argentina”) may be found in law number 24,522 of the Commercial Code (the “Code”) which was enacted on July 20, 1995 and made effective December 9, 1995 following approval by the Executive branch of government.

The preceding Bankruptcy law, law number 19,551 of the Code, was enacted in 1972 and was later modified by law number 22,917 of the Code enacted in 1983. The current bankruptcy law is identical to approximately eighty (80) percent of the prior law. Therefore, doctrine and jurisprudence applying law number 19,551, as modified, may serve to interpret a large portion of the new law. Nevertheless, numerous commentaries have already been published regarding the new law, particularly with respect to its new aspects.

B. General Characteristics

By way of comparison with the prior legislation, the new law contains the following general characteristics:

1. Preservation of Structure

The new law maintains the structure of the prior legislation in the order by which various topics are presented, both generally and specifically. The new law also maintains substantially the same text as the old law in the majority of its chapters. Despite the introduction of new and important changes – including modifications in the “spirit” of certain statutory solutions to problems posed by insolvent entities – the preservation of structure and text permits better application of the new law by building on the important doctrine and jurisprudence created under the old law. This also permits better understanding by the non-specialist, who will find that an update in reviewing the new legislation can be completed in relatively short order.

2. Abandonment of the Project ProPosing to Adopt Foreign Legislation

Prior to the enactment of the new legislation, a proposal was circulated to adopt, in general terms, the bankruptcy law of the United States. The proposal ultimately failed, which, according to the author, was correct since insolvency legislation in any country should reflect the variety of cultural and environmental conditions present in the host country. Additionally, the author believes that bankruptcy laws of a given nation should fit, in “glove-like” fashion, the legal norms of the host country which nominally dictate the principles by which solvent institutions regulate themselves and which are applied to insolvent debtors. Each country therefore requires specific legislation for its own judicial institutions which are not copies of those present in other countries, while preserving the significant advantages of applying comparative law principles to analyze and create solutions.

3. Parallel Projects of the Ministry of Justice and Domestic Doctrine and

Legislation

Prior to the foregoing proposal, a commission created by the Ministry of Justice developed a study which was ultimately published.’ While many of the solutions incorporated in the new law originated from this study, the new law also preserves certain traditional doctrines and jurisprudence.

4. Argentine National Reality and Economic Momentum

Domestic political and economic conditions in existence in Argentina affected the formulation of the new law. An illustration of this phenomenon may be found in certain articles See, e.g., Alegria, “Lights and Shadows in the New Bankruptcy Law”, Enoikos, Faculty of

Economic Sciences (year 4, number 11).

II. Basic Structure of the New Law

Similar to its predecessor, the new statute is divided into four articles with the titles “General Principles”, “Reorganization (“Concurso Preventivo” and “Liquidation” (“Quiebra”).

The fourth section, due to a transcription error in the text of the statute, does not have a title and contains administrative provisions common to all of the other sections, including rules regarding professionals, procedure, small cases and transitions.

The provisions under the reorganization article of the new law are comparable to the reorganization provisions in chapter 11 of the United States Bankruptcy Code (11 U.S.C. et seq.). Nevertheless, the reorganization article also follows certain traditions in Argentine law.

The publisher of the study was Abelado-Perrot, which published the text in 1993.

All terms of art used in this manuscript will be followed in parentheses by the translated original term in Spanish which will be in italics. The translator used certain discretion in translating terms used in the Argentine legal system which do not have a precise counterpart or equivalent in the U.S. legal system.

III. General PrinciPles

A. Cessation of Pavments

The fundamental concept in the commencement of a reorganization continues to be the state of cessation of payments, which originates from European law and is interpreted extensively in Argentine doctrine and jurisprudence.

B. Entities Qualifying to Reorganize

Reorganizations and liquidations may encompass the assets and liabilities of any entity in the general civil arena (including associations and foundations) and in the commercial arena. The new law expressly excludes insurance companies, administrators of retirement plans and pension funds, all of which are subject to unique treatment.

The new law includes the novelty of permitting the reorganization and the liquidation of entities in which the national, provincial or municipal state may be a party regardless of the degree of the state’s participation. A case is currently pending in which this new provision is being applied.

C. Cross Border Insolvency

The fourth article of the new law contains many of the same provisions which were present in article four of the old law. The foreign creditor may exercise its rights in reorganizations and liquidations initiated in Argentina in accordance with certain internationally recognized insolvency principles. In the event of a cross border insolvency involving a domestic liquidation in Argentina and a reorganization overseas, foreign creditors receive their distributions after Argentine domestic creditors receive their distributions.

IV. Reorganizations (“Concursos Preventivos”)

A. Generality

Reorganizations, as well as nonjudicial workouts (“concursos preventivos extrajudiciales”), are the only measures available to prevent a “straight” liquidation under Argentine law. In practice, massive or global credit refinancings have been permitted in Argentine reorganizations (“clubes de bancos”).

B. Filing. Effects of Filing and the “Apertura”

The new law imposes requirements on the debtor in both the initiation and in the period immediately following the commencement of a reorganization which is designated in Argentine jurisprudence as the “Apertura”.

The effects of the Apertura include the administration of the debtor’ s affairs by management with certain restrictions and the supervision of a trustee. If certain acts are imposed contrary to certain legal requirements, management can lose administrative control over the debtor during the course of the reorganization. The Apertura serves to stay or suspend activity against the debtor by interested parties, it permits the debtor to resolve certain pending contracts and it retains certain important effects over pending litigation. The new law also acts to suspend collective bargaining agreements with labor unions over a three (3) year period, applying only general labor law. The new law also contemplates the creation of an interim collective bargaining agreement (“convenio colectivo de crisis”) which is followed until the reorganization plan (“propuesta de acuerdo”) is implemented.

C. Duration the Course of the Reorganization

Once the judge initiates the reorganization, certain rulings and letters to creditors are issued. The new law includes new provisions which permit the debtor to remove itself from the reorganization, provided that a certain majority of creditors agree with the debtor’s removal. This alternative does not require the proposal of a plan of reorganization.

Creditors have a certain period time within which to prove or verify their claims to the trustee or the judge. The verification process is complete upon the entry of a judicial ruling which verifies the claim, or which alternatively finds that the claim is admissible or inadmissible. Creditors with verified claims which have not been reviewed by the debtor or the trustee will have the advantage of resolution by adjudication. However, creditors with admissible claims by judicial ruling but which have also been reviewed by the debtor or the trustee are the onlv creditors whose claims will be counted for voting purposes in connection with a plan of reorganization.

D. General Information. Process and Voting

The trustee presents a general report (“inforrne general”) regarding the background of the debtor and any activity during the course of the reorganization.

The new law contains certain important modifications to the plan of reorganization and the voting process:

(i) Differentiation of voting creditors by classifying creditors and creditor groups in the plan. The classification is proposed by the debtor but is resolved by the judge prior to voting;

(ii) Designation by the judge of an interim creditors’ committee, the composition of which is determined by plan classes;

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(iii) An exclusive period which varies from thirty (30) to sixty (60) days commencing from the date on which the judge creates the voting classes, during which a debtor has the exclusive right to propose a plan and obtain creditor approval;

(iv) Broad latitude in making plan proposals involving any solution which may be legally implemented (such as amortization payments, refinancings, asset transfers, etc.);

(v) A requirement that the debtor propose, at a minimum, treatment for unsecured creditor classes; however, the debtor may also incorporate agreements involving secured creditor classes;

(vi) Plan voting by written and certified (by judicial or administrative notary) ballot submitted by the voting creditors. This modification is particularly significant since, under the old law, plan voting was accomplished by a special creditors’ committee (“junta de acreedores”) which is no longer in existence;

(vii) Following the expiration of the exclusive period, alternative plans may be proposed by creditors or third parties for certain types of debtor entities, namely limited liability companies (“sociedades de responsablidades limitadas”), cooperatives (“cooperativas”) or entities in which the government retains an interest. In contrast to the U.S. system, the debtor cannot make a competing proposal since the expiration of the debtor’s exclusive period in effect creates another exclusive period in favor of third party creditors. Under Argentine law and in stark contrast to U.S. Iaw, the judge does not have the authority to impose a plan on any class of creditors by means of a “cramdown”, nor do shareholders or partners comprise a separate creditor class. Another unique and controversial feature of Argentine insolvency law is a doctrine establishing that the first plan proposal to be approved by sufficient votes will be confirmed by the court regardless of the merits of a competing plan proposal which may be submitted for approval after the first plan. The plan obtaining the majority vote may request valuation of the debtor’s assets by the judge in a complex and lengthy proceeding. In practice, most confirmed plans are proposed by the debtor itself; and

(viii) The judge then confirms the plan which has either been proposed first by the debtor during its exclusive period or later by a creditor or a third party in the subsequent exclusive period. In order for the judge to confirm the plan, the requisite majority votes must exist. The old law contained a provision which has been repealed permitting a judge to reject plan confirmation, even with the requisite vote, when the plan was against the “general interest”. A new provision under the new law permits the judge to declare the completion of the reorganization following confirmation and the completion of immediate plan requirements. The trustee may therefore exit the case at an earlier stage than under the old law, which required the trustee ‘ s involvement until all plan provisions had been implemented. However, the new law also perrnits the judge to rule that the plan provisions have been satisfied and completed (“el cumplimiento del acuerdo”) through a special ruling entered when all plan provisions have been met.

E. Group Reorganization Cases

A significant development under the new law which was promoted by the project study sponsored by the Ministry of Justice involves one reorganization proceeding of various entities collectively joined in an economic group. In order for such a proceeding to be initiated, a single judge and one trustee must retain jurisdiction over all of the proposed entities in a given economic group. Despite this requirement, the new law permits that a plan be submitted individually for each entity in the group or collectively by the entire group. If an individual plan is not consummated, only the one entity which submitted the defaulted plan will be liquidated, whereas a default under the collective plan will result in the liquidation of all of the members of the group.

F. Noniudicial Workouts

Another feature under the new law is the separate treatment of nonjudicial workouts. Generally, Argentine law has provided for nonjudicial workouts (“acuerdos preconcursales”) consisting of private agreements between a debtor and all or certain of its creditors. These provisions responded to the practice of implementing nonjudicial workouts through “clubes de bancos”, and permitted certain reasonable assurances for creditors, particularly in the event of subsequent liquidation.

The current nonjudicial workout provisions under the new law implement a new procedure which is ironically judicial in nature. This procedure serves to legitimize a workout agreement by insuring that it contains certain basic provisions and by subjecting the parties to a brief proceeding. Under the new law, the workout agreement only binds the creditors which executed the agreement. Furthermore, once the agreement has been approved by the judge, it may not be collaterally attacked by preexisting or future creditors in the event that the debtor subsequently liquidates.

Significantly, the new law does not specify whether nonjudicial workouts which are not subjected to this procedure are valid and enforceable. For example, the validity of a partial or complete debt refinancing is unclear under these new provisions.

V. Liquidations (“Ouiebras”)

A. Generality

Unlike the numerous changes in the reorganization article, the new law provides fewer novel provisions with regard to liquidations. The liquidation article will therefore be summarized with brevity.

B. Declaration of a Liquidation

A judge will enter an order and thereby initiate a liquidation upon the request of a debtor or a creditor or following a default or nullification of a plan in a reorganization proceeding or nonjudicial workout. The petition filed by the creditor is processed very quickly and in many cases is used to collect accounts receivable or other debts.

C. Conversion to a Reorganization (“Conversion”)

This new procedure replaces the prior procedure under the old law, denominated the “acuerdo resolutorio”, by which an agreement was obtained following the judicial initiation of a liquidation as a means to resolve the state of liquidation. This procedure permits the debtor to require the judge to convert a liquidation proceeding to a reorganization proceeding. This may occur quickly but will not be permitted in the event that a default occurred in an agreement arising from a nonjudicial workout.

D. Effect of a Liquidation

The new law contemplates a large number of effects resulting from the initiation of a liquidation proceeding, some of which will be listed below:

(i) The debtor, its owners and management are prohibited from conducting their business from the date of the judicial declaration for a period of at least one (1) year. This restriction also applies to prior management who were active during the statutory lookback period (“periodo de sospecha”) which is described below. The prohibition period may be reduced by the judge in the event that no evidence of criminal activity exists. On the other hand, this period may be extended or even reestablished if the debtor or its management are subject to a criminal action;

(ii) The debtor is divested (“desapoderado”) of its assets which are administered and eventually disposed by the trustee in accordance with procedures set forth in the new law;

(iii) The new law establishes a lookback period (“periodo de sospecha”) extending prior to the initiation of the liquidation proceeding and which commences on the date on which the debtor ceased paying its obligations. This period may not extend beyond two (2) years prior to either (a) the date of initiation of the liquidation or (b) the date in which the nonjudicial workout agreement is presented, whichever is applicable. In exceptional cases, such as conveyances for no consideration or payments in anticipation of indebtedness, the actions by the debtor during the lookback period may be void ab initio (“ineficaces de pleno derecho”). Remaining actions by the debtor during this period are voidable (“revocables”) if the party with which the debtor performed the act had knowledge that the debtor had ceased paying its obligations. These voidable transactions require a judicial determination which is usually initiated by the trustee but which in certain instances may be initiated by the creditors;

(iv) The new law contains general provisions (“efectos generales”) generally consisting of claims verification by all of the creditors, the suspension of the transfer of assets (with the exception of collateral pledged to secured creditors), the consolidation of all pending litigation into the liquidation proceeding and other matters; and

(v) A special chapter in the new law addresses contractual issues which are pending at the time of bankruptcy which are primarily resolved by application of traditional norms under Argentine law.

E. Extension of the Liquidation Proceedings to Nondebtors

Since 1972, under certain circumstances outside nondebtor entities may be subject to a liquidation proceeding in Argentina. The extension of a liquidation proceeding automatically occurs, without any limitations, to the partners of a liquidating commercial entity. Individuals or corporate entities may also be subject to a liquidation proceeding by “piercing the corporate veil” (“sociedad pantalla”) under which parties abused their control of the corporate entity or transferred title of the debtor’s assets.

F. Other Responsible Parties

The new law provides that fraudulent activity non-debtor parties, including partners, owners or management of the debtor, will result in liability for these parties and their being subject to the bankruptcy proceeding.

G. Elimination of Conduct Evaluation (“Calificacion de Condllcta”)

The new law eliminates the conduct evaluation provisions of the old law which had been criticized for their lack of efficiency. The drafters of the new law recognized the redundancy of keeping the conduct evaluation provisions given the liability provisions for fraudulent and negligent activity under the new law which are described above.

H. Other Matters

The liquidation article in the new law also includes provisions regarding the following:

(i) The administration and sale of assets (which must be initiated four (4) months from the initiation of the liquidation). Under exceptional circumstances, a business may continue to operate after the filing;

(ii) The distribution of proceeds to creditors;

(iii) The conclusion of the liquidation proceeding by agreement among the creditors or by satisfaction of claims in full; and

(iv) Closure of the proceeding due to final distributions having been made or the liquidation of all of the debtor’s assets.

VI. Common Provisions (“Disposiciones Comunes”)

The unnamed Article IV in the new law corresponds to the same article under the old law with the title “Dispociones Comunes”.

A. Priorities

Priorities under the new law are genera]ly the same as under the former bankruptcy law in Argentina. Subordinated loans are recognized under the new law.

B. Trustees and Professionals in Bankruptcv Cases

1. Trustees

The trustee provisions in the old law have been preserved, with certain minor modifications, under the new law. Trustees in Argentina consist primarily of certified public accountants. The new law contains new provisions regarding the creation of two lists which include (i) List A, comprised of firms which serve in large, complex reorganizations and liquidations and (ii) List B, comprised of independent professionals who serve in the remaining cases. The trustees serve on each list for a period of four (4) years and the trustees are designated by each judge by drawing lots.

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2. Other Professionals

Other professionals who participate in the Argentine bankruptcy process include:

(i) Administrators (“coadminstradores”‘) who serve by judicial appointment and generally have a business degree or experience relating to the debtor’s business;

(ii) Creditors’ Committees are appointed. although the role of these committees is controversial partially due to their mandatory appointment in the process;

(iii) Liquidators serve to liquidate the debtor’s assets and may include auctioneers, banks, investment banks or other specialized professionals; and

(iv) Appraisers calculate the value of the debtor’s assets which comprise the bankruptcy estate.

3. Compensation

The new law has substantially reduced professional compensation in bankruptcy cases. Generally, compensation has been reduced by fifty (50) percent.

C. Procedural Rules

Since this is a federal law which is applied nationally in Argentina, the procedural rules have similar universal application through the country.

D. Small Business Reoroanizations and Liquidations

The new law contains two articles addressing small business reorganizations and

liquidations. In order to qualify for special treatment, the debtor must have one of the following characteristics: (i) liabilities totaling less than $100,000; (ii) no more than twenty (20) unsecured creditors; or (iii) no more than twenty (20) employees. In any event, the “simplification” of the proceedings described in the article for these small cases do not appear to be sufficient.

E Special Aspects of the New Law

1. “Cramdown”

Since no parallel laws were distinctly used as a guideline for the new law, certain practical problems exist in its application. One dilemma involves the valuation issues addressed by a judge when confronted with a “cramdown” scenario in a plan of reorganization to be imposed upon opposing creditors. These classic valuation problems may be manifested by overly optimistic values attributed to a debtor’s assets or by depressed values which do not reflect such assets as intangibles.

2. Creditors’ Committees

As discussed, the new contains numerous imprecise provisions, among them a requirement of the creation of three (3) separate creditors’ committees during the course of a reorganization. In practice, these committees are not effective or have very limited effects.

3. Small Business Reorganizations

In practice, the vast majority of reorganization cases in Argentina involve small debtors. The old law, and in part the new law, require long and convoluted reorganization proceedings which are inefficient economically and occupy substantial amounts of judicial and professional resources. A consensus exists in the professional community to greatly simplify these proceedings in order to avoid protracted resolution and great expense. The study sponsored by the Ministry of Justice contained a more comprehensive and efficient proposal than that which was ultimately enacted under the new law.

4. Time Issues

The application of the new law in reorganizations and liquidations, particularly immediately following enactment, is resulting in numerous conflicts which protract the proceedings and foster insecurity and slowness which are contrary to the goals of this legislation.

5. VotinsJ System and “Cartas Poder

The old law in Argentina provided for a simple document, the “carta poder”, which was used in voting for or against plans of reorganization. The new law omits this provision, thereby creating numerous difficulties and increasing costs, particularly in nonjudicial workouts.

6. Restrictions on Business Activitv

While the elimination of the “calificacion” system for evaluating fraudulent activity can be viewed as a positive development, its substitution by a doctrine of automatic restrictions on any business activity for the debtor and its management may be considered unjust and draconian since the duration of these restrictions may be indefinite if criminal litigation is pending.

7. Liquidation of Assets

The new law provides for a brief period during which assets are to be liquidated.

The author agrees with this concept but also believes that a more streamlined procedure with greater judicial powers should be implemented in order to further expedite asset liquidation.

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8. Refinancings and Private Agreements

The lack of any provisions in the new law regarding refinancings and nonjudicial workouts which are not judicially ratified – and the excessive costs and formalities associated with the nonjudicial workout provisions under the new law – both generate uncertainty when business refinancings or restructurings occur in practice.

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