Argentina's new Law 27,430 introduces a new taxable event: a Value Added Tax (hereinafter VAT) applicable to the importation of "digital services" rendered by a non-resident to a resident individual or entity when the effective use or exploitation of the service is carried out inside Argentina.
An earlier regulation, Decree 354/2018 of April 23, 2018, a deficient attempt to regulate the VAT applicable on digital services, was recently repealed.
According to the current wording of the VAT Law and its Regulatory Decree, VAT applicable to the importation of digital services has the characteristics that are detailed below.
I. New VAT tax event: digital services
VAT is triggered by the "digital services" rendered by a non-resident to a resident individual or entity, when the effective use or exploitation of the service takes place inside Argentina.
Pursuant to the definition provided by VAT Law, digital services are "... whatever the device used for download, viewing or use, those carried out through the Internet or any adaptation or application of protocols, platforms or technology used by the Internet or other network through which equivalent services are provided that, by their nature, are basically automated and require minimal human intervention ... "(Section 3.21.m of the VAT Law, emphasis ours).
Neither the Law nor the Regulatory Decree provides objective parameters on the requirements of "automation" and "minimal human intervention."
As an illustration, the VAT Law considers "digital services" to be:
- The supply and hosting of computer sites and web page
- The supply of digitized products in general, including, among others, computer programs, their modifications and their updates, as well as access and / or download of digital books, designs, components, patterns and similar, reports, financial analysis or market data and guides
- Remote maintenance, in an automated way, of programs and equipment
- The administration of remote systems and online technical support
- Web services, including, among others, the storage of data with access remotely or online, memory services and online advertising
- Software services, including, but not limited to, software services provided on the Internet ("software as a service" or "SaaS") through cloud-based downloads
- Access and / or download to images, text, information, video, music, games -including gambling
- The provision of databases and any service generated automatically from a computer
- The service provided by blogs, magazines or newspapers online
- The provision of Internet services
- Distance learning or test or exercises, carried out or corrected in an automated way
- The concession of the right to market a good or service on an Internet site that functions as an online market, including online auction service
- The manipulation and calculation of data through the Internet or other electronic networks.
Regarding the requirement of effective use or exploitation in Argentina, the law establishes presumptions that do not admit evidence to the contrary. Thus, the law presumes that the effective exploitation of the service is carried out in Argentina when it is located in Argentina:
- ".... The IP address of the device used by the customer or SIM card country code, as specified in the previous paragraph; o
- The billing address of the local client; o
- The bank account used for the payment, the billing address of the customer that the bank has or the financial institution issuing the credit or debit card with which the payment is made ... "(Section. 1 of the VAT Law).
Pursuant to Section 65.8 of the Regulatory Decree, if the indications that do not admit evidence to the contrary described in the previous paragraph are not verified, then any other indication to which the AFIP may appeal is rebuttable. It is also possible to rebut the classification as a "digital service"; that is, if the tax authorities consider that a service is a "digital service," contributors may produce evidence to challenge such qualification.
II. VAT contributors: service receivers and non-resident service providers
Pursuant to the VAT Law, the taxpayer of the VAT applicable to "digital services" is the local service receiver unless the service provider is deemed as a resident according to the Income Tax Law, or when the service provider has a fixed place in the country.
Sections 14.1 and 14.2 of the Regulatory Decree establish that the service provider will not be considered a non-resident when it has been deemed to be a tax resident in accordance with the provisions of the Income Tax Law, or when the service provider has a "fixed place in the country." In those cases, service providers will be obliged to register as a VAT contributor and to determine and pay the VAT triggered their operations.
That is, the Regulatory Decree establishes that if the service provider is considered a tax resident for purposes of income tax, then it must be registered in the VAT and pay the tax as a local contributor.
The same applies to a service provider that is not considered a resident for income tax purposes, provided that the service provider has a fixed place in the country.
Neither the Law nor the Regulatory Decree clarify the meaning of "a fixed place in the country," so, in principle, the term could broadly encompass any office, agency or physical place.
It is unclear whether, by way of the Regulatory Decree, a non-resident could be granted VAT taxpayer status based only on the fact that it is a resident for the purpose of income tax, or only because it has a fixed place in the country.
Finally, if the service provider is considered a tax resident under the Income Tax Law, or has a fixed place in the country, the service provider must register as a VAT contributor, filling VAT tax returns and paying the tax as a resident. Otherwise, it is the service provider who is considered a taxpayer and must pay the VAT triggered by "digital services."
The VAT paid by the service receiver is considered a tax credit and can be credited against VAT tax debits, provided that the services receiver is already a registered contributor of the VAT.
III. VAT payment
As indicated above, the VAT taxpayer on digital services is the service receiver, as provided in Section 4th inc. i) of the VAT Law.
For the purpose of registration and payment of the tax, Section 69 of the Regulatory Decree provides that the tax authority shall dictate the standards to which the taxpayers of the VAT must adjust in order to externalize their status as registered VAT contributors.
However. the Regulatory Decree states that in the case of the digital service receiver, the registration obligation shall be deemed fulfilled with the payment of the tax by the corresponding party.
That is, in the event that the VAT is paid by the digital service receiver, the registration obligation is understood to be fulfilled with the payment of the tax in accordance with the provisions of Section 65.7 of the Regulatory Decree.
Section 65.7 of the Regulatory Decree establishes that the tax is borne by the borrower either directly or through the collection mechanisms established in said Section.
If a resident intermediary mediates in the payment, it will act as withholding agent.
The tax authority shall provide the form and the periods in which the tax collection shall be performed and entered by the intermediary. If there is more than one resident intermediary in Argentina that plays a role in the payment, then the character of withholding agent will be assumed by the one that has the closest commercial link with the digital service provider; in any case, the tax will continue to impact on the service receiver.
The service receiver is obliged to calculate and pay tax in accordance with the form, terms and conditions to be established by the tax authority when there is no intermediary resident in the country that intervenes in the payment.
IV. Term of payment and tax rate
The VAT must be paid at the time of the total or partial payment of the service charge, according to the provisions of Section 27.1 of the VAT Law. The applicable tax rate is 21 percent of the service charge.