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Argentina Cancels Double Tax Pact With Spain

by Mike Godfrey,, Washington

18 July 2012

The Argentine government has announced its decision to terminate the convention for the avoidance of double taxation it shares with Spain following a tax dispute with Spanish oil firm Repsol YPF.

The Argentine government confirmed its decision in an order posted in its Official Gazette last month. The double tax agreement, which sets a beneficial legal framework for cross-border business between the two countries, will expire from December 31, 2012, exposing economic entities in both countries to substantially higher withholding taxes, while income derived from cross-border trade or investment will no longer be shielded from the potential for tax liability in both countries.

Argentina's decision to withdraw from the treaty follows confirmation last month that it will terminate its agreement with Chile. As in the case of the Chile agreement, the two-decades-old Spain-Argentina DTA provides for full exemption for Spanish entities from the Argentinean wealth tax.

The decision from Argentina is thought to be politically motivated, and comes in the wake of compliance action taken by the Argentine tax authority, AFIP, against the nation's largest energy company, YPF, then owned by Spanish firm Repsol, in February 2012. YPF was barred from importing or exporting from the nation after failing to make payment on a USD8m outstanding tax bill within a 10-day window. The somewhat heavy handed enforcement action came as the Argentine agency said it was upping enforcement efforts against 300 tax debtors.

The Argentine government has since seized control of YPF from Repsol by acquiring a 51% stake in the firm, as it attempts to boost domestic oil production and lessen the country's dependence on imported fuel.

TAGS: compliance | tax | investment | business | double tax agreement (DTA) | Chile | energy | law | oil and gas | tax authority | agreements | withholding tax | Spain | regulation | Argentina

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