ARGENTINA: An Introduction to Private Wealth Law

The Context: Argentina’s Political and Economic Environment

The second half of 2023 is extremely important for Argentine high net worth individuals (HNWI) and families, as President, Governors, national Deputies, and national Senators will be elected. The electoral scenario presents two coalitions and an outsider. The ruling Peronist coalition (Unión por la Patria), the centre-right opposition coalition (Juntos por el Cambio) and Javier Milei, a far-right libertarian economist.

Although the ruling Peronist coalition had been facing a leadership vacuum, the recent appointment of Sergio Massa (the current Economy Minister) as the sole candidate for presidency has changed what seemed to be the prospect of the Peronists’ worst election result in decades. However, and considering the current economic situation (three-digit inflation, 40% poverty and a currency exchange rate gap of more than 100%), it is hard to envisage (but in Argentina everything is possible) a scenario in which the ruling coalition wins the election.

In view of the above, the ruling Peronist coalition might be defeated in next October’s elections, which means that Argentina might make a turn from populism to the moderate right. In that scenario, HNWI, whom the ruling coalition has attacked constantly during the last four years (through the brutal increase of personal assets tax rates and the one-off “Tax on Big Fortunes”) should expect no further chasing. However, an immediate ease on HNWI’s wealth tax burden should not be expected either; not until fiscal balance is achieved. Besides, HNWI will remain rather sceptical of the idea that Argentina has left behind forever the populist chapter of its recent history and will therefore be alert to the possibility of a populist comeback (as happened in 2019).

Trends and Developments in Private Client Law 

In the past four years (but mainly in 2019 and 2020, upon the Peronist comeback) moving abroad has been an attractive option for HNWI looking to attain asset protection and tax efficiency (mainly Argentines moving to Uruguay, Spain and the USA). The fact that Argentina has no exit tax made this a feasible alternative.

The Argentine Federal Tax Authority (AFIP) has been very active auditing cases of large taxpayers moving abroad to determine “double tax residency” under any applicable Double Tax Treaty or through domestic law (Section 122, ITL). That’s why - depending on their overall situation (family, activity, and situs of their assets) – it is advisable for clients to not spend more than 90 days per year in Argentina to ensure they do not face a tax audit under a “double resident test” (through residence tie-breaker rules). There is still too much confusion on tax residency issues. Not only among tax advisors but within AFIP itself and even before the Tax Court (we have seen absurd rulings based on this confusion). That is why families’ need for proper advice should not be underestimated; they risk being exposed to these arbitrary interpretations and need a preventive action plan.

Considering the current political and economic environment, asset protection, tax efficiency and confidentiality will be the main drivers for HNWI’s planning in the coming semester. Foreign irrevocable discretionary trusts and domestic revocable trusts (fideicomisos) might be valid mechanisms to attain these goals.

HNWI are increasingly turning to foreign trusts for tax planning - overcoming their usual resistance to giving up control on the irrevocably transferred assets - since they attain a triple benefit through this structure: asset protection, estate planning (disciplined passage of part of the estate to their heirs) and tax efficiency. As confidentiality is also a very important aspect for Argentine individuals and families, foreign non-grantor trusts are a suitable alternative. If properly structured there would be no automatic information exchange with AFIP (neither through the OECD’s Common Reporting Standard (CRS) nor under the US Foreign Account Tax Compliance Act Intergovernmental Agreement Model 1 (FATCA-IGA Model 1), in force as of 1 January 2023).

Domestic trusts (fideicomisos) are a good alternative for Argentine-resident individuals reluctant to give up control through an irrevocable trust structure. Although this mechanism does not allow personal income tax deferral, if properly structured it may ease the overall wealth tax burden. Besides, domestic trusts (fideicomisos) are a useful planning vehicle for Argentine families that have members of the next generations who qualify as US citizens (very common among high net-worth families) and/or plan to move to the USA. It allows them to attain tax efficiency for the US beneficiaries through (if properly structured) step-up of the assets to fair market value (an efficiency for US capital gains) and by preventing those assets from being part of the US beneficiaries’ estate (an efficiency for US federal estate tax).

Moving abroad is an option that HNWI are still considering and that might gain or lose attractiveness depending on the results in October’s elections and in the subsequent performance and political clout of an expected centre-right government.

How is CRS affecting Argentine-resident HNWI?

Automatic exchange of information under the CRS has massively increased the number of tax audits that Argentine-resident HNWI are currently facing. Most of the tax inspectors who oversee tax audits have little knowledge of complex planning structures as well as how the information is exchanged under the CRS. Therefore, a tax audit is initiated “just in case” and not because the tax inspector detects an inconsistency with the filed tax returns. Most confusions arise from information related to personal accounts under joint tenancy and trust structures.

Besides, HNWI are rethinking which is the best jurisdiction for certain structures to attain confidentiality (if properly structured, information would not be exchanged either under the CRS or under FATCA-IGA Model 1).

How does FATCA IGA-Model 1 affect Argentine-resident HNWI?

After several negotiations, on 5 December 2022, Argentina signed an Intergovernmental Agreement (IGA) with the USA to facilitate implementation of FATCA. Although the agreement allows the reciprocal exchange of certain financial account information between the USA and Argentina (Model 1), there is still asymmetry considering the extent of the information that USA will receive in comparison with Argentina (mainly as per the definition of an Argentine Reportable Account).

The Agreement establishes that the obligation of the USA to obtain and exchange information shall take effect on the date that the USA provides written notification to the Argentine competent authority when it is satisfied that Argentina has in place appropriate safeguards to ensure that the information received pursuant to the Agreement shall remain confidential and be used solely for tax purposes and that the infrastructure for an effective exchange relationship exists.

In view of the above, the FATCA IGA-Model 1 (in force as of 1 January 2023) is not quite a game changer for Argentine HNWI who are used to holding financial investments in US accounts through foreign corporations or trusts, which do not qualify as Argentine reportable accounts.