Law No. 27, 263 created the "Regime for the Development and Strengthening of the Argentine Auto Parts Industry" (the "Regime") , that grants tax benefits to manufacturers of vehicles that use national auto parts or to manufacturers of auto parts in Argentina.

I. Purpose and benefits

The purpose of the Regime is to boost the manufacturing and use in Argentina of auto parts to be used in cars, utility vehicles, trucks, chassis, buses, trailers, farming and road machinery, combustion and hybrid engines and transmissions.

Legal entities that apply to the Regime will obtain a tax credit bond (calculated over the value of the auto parts incorporated to motor vehicles, machinery and auto parts previously mentioned) that can be used to pay its own taxes or assigned to third parties for the payment of Federal taxes.

The value of the tax credit bond will vary between 4% and 15%, depending on the national content of the manufactured goods. In the case of dies and molds, the bond will be equivalent to 8% of its value, while the acquisition of forged or casted pieces of ferrous or non-ferrous materials will be benefited with an extra 7% bond, provided that the national content quota is met.

The value of the bond will be determined by applying the previously mentioned percentages on the ex works value (deducting VAT, financial expenses, discounts and bonuses, when the auto parts are purchased externally) or on the industrial costs (when the auto parts are manufactured in-house) of the auto parts incorporated to the manufacturing process of any of the mentioned products (above certain percentages of spare parts manufactured in Argentina).

The tax credit bond can be used to pay Income Tax, Minimum Deemed Income Tax, VAT and Excise Taxes, but it can not be applied to cancelling debts existing before the incorporation of the taxpayer to the Regime or to cancelling tax balances arising as the result of the liability as third party, collection or withholding regimes. Reimbursements or refunds procedures are not applicable.

In addition to that, the Regime sets forth a 0% import tax on imported tools, when its value is not greater than 50% of the value of the national goods acquired locally or produced in house.

II. Requirements

The application authority is the Secretary of Industry and Services, an office of the Ministry of Production.

To obtain the benefits of the Regime, the interested party must file a request referring to any of these cases:

(i) The manufacturing of a new exclusive platform.

(ii) When the platforms are not new, the interested parties can obtain the benefits provided that the investments imply a significant redesign of the involved assets.

(iii) In the case of auto parts, the parts must be new or existing parts that imply an increase of the production capacity.

The approval of the request is subject to the impact of the benefit on the decision to invest, its export capacity, impact on employment, competitiveness of the value chain, the creation of national added value, incorporation of new technologies and the production scale.

Furthermore, the interested parties will have to file, along with the request, the detail of local providers, local production parts provided by each and purchasing volumes.

All projects will be regularly audited, and non-compliance will be subject to different penalties. Requests to apply to the Regime can be filed until 2026.

II.a. Definitions

For purposes of the interpretatation of the provisions of the Regime, these terms must be understood as follows:

Platform: the primary structure that carries the weight of a vehicle, determining its basic size and conforming the structural base that supports the engine and joins the different parts of the vehicle (car body montage, dimensional frame or unitary body).

New platform: is the platform that initiates its production because of a relevant investment on fixed assets, redesign of processes and products, civil works and developments of local suppliers, reaching an optimum scale production. For a new platform to be considered as new, the minimum investments must be 50 million dollars (for vehicles, utility vehicles and light commercial units) or 20 million dollars (for trucks, chassis and buses).

Exclusive platform: define as that one which production is developed within the Mercosur, solely in Argentina.

Old platform: this term is not expressly defined by the Regime. However, the applicable regulations establish that when an exclusive platform does not qualify as a new platform, the manufacturer interested in obtaining tax benefits will have to file an application form with a significant redesign of the platform. A significant redesign of a platform takes place when: (i) the primary structure is altered, totally or partially, (ii) at least two of its systems are updated (i.e. engine, gearbox, transmission, electric system, shocks, suspension, steering and brakes), (iii) technological advances that improve the performance of the vehicle to the current standard of its segment are included, (iv) there is an investment of at least 50% of the threshold set for new platforms, and (v) there is an increase of the use of national auto parts of at least 1% (in relation to the year before the redesign is implemented) which should be increased to 3% when the use of national content pieces is below 35%.

Auto parts: parts, pieces, sets, subsets and systems that integrate the vehicle or auto parts benefited by the Regime, included on a list approved by the application authority.

National auto parts: For purposes of the Regime, national auto parts, tools, matrix and molds are considered as: a) systems, sets and subsets with a percentage of national content not below 30%; b) parts and pieces, when its manufacturing is made only and exclusively with national raw materials or supplies. It will also apply to imported supplies, when these are subject to an elaboration or improvement industrial process that implies a transformation that gives them a new identity; c) parts, pieces, sets and subsets produced in Tierra del Fuego under the terms of Law 19,640 and d) tools built in Argentina for parts and pieces that form the goods benefited by the Regime. Such tools will be considered as national regardless of the elements that form them.

Terminal companies: manufacturers of motor vehicles, utility vehicles, trucks, chassis, buses, trailers, farming and road machinery.

Auto parts manufacturers: manufactures of combustion and hybrid engines, transmissions and its components and other auto parts, sets and subsets.

In house components: the parts or pieces produced internally by terminal companies or auto parts manufacturers.