The US Argentina Tax Treaty: Status and Key Provisions

A comprehensive income tax treaty between the United States and Argentina was signed in 2016, but it has not been ratified by the U.S. and is not currently in effect. The absence of an active treaty means the potential for double taxation exists for individuals and companies operating in both countries.

Instead of a comprehensive treaty, the tax relationship is governed by information-sharing agreements. A Tax Information Exchange Agreement (TIEA) is in place, and the two countries implemented a Foreign Account Tax Compliance Act (FATCA) Intergovernmental Agreement in 2023. This FATCA agreement provides for the automatic, reciprocal exchange of financial account information between the tax authorities, but it does not prevent double taxation.

Determining Tax Residency

Under the domestic laws of the United States, an individual is generally considered a resident for tax purposes if they meet the “substantial presence test.” This test is a mathematical formula based on the number of days a person is physically present in the U.S. over a three-year period. An individual who is present in the U.S. for at least 31 days in the current year and a combined total of 183 days over the current and two preceding years, with days in prior years weighted, will meet this threshold.

Argentine law defines a tax resident as any individual who has been in Argentina for more than 183 days in a calendar year. This can create situations where an individual is considered a resident of both countries simultaneously, known as a “dual resident.” The proposed treaty contains a series of “tie-breaker” rules to resolve these conflicts and assign residency to a single country for treaty purposes.

These rules are applied sequentially until a determination is made:

• The “permanent home” test, which looks at where the individual has a home available to them.
• If a permanent home exists in both countries, the “center of vital interests” test is applied, examining where personal and economic ties are closer.
• If that is not determinative, the “habitual abode” test considers where the individual more frequently lives.
• If residency is still not settled, the individual’s nationality becomes the deciding factor.

Key Provisions of the Proposed Treaty

The 2016 signed treaty, though not in force, outlines significant reductions in withholding taxes and clarifies taxing rights for various types of income. These provisions illustrate the intended tax treatment should the treaty be ratified.

Dividends

Under the proposed treaty, the withholding tax rates on dividends paid from a source in one country to a resident of the other would be substantially reduced. The treaty would establish a two-tiered system, with a lower rate for dividends paid to companies that own a significant portion of the dividend-paying company’s stock. A higher, though still reduced, rate would apply to all other dividends, such as those paid to individual investors.

Interest

The treaty also provides for reduced withholding tax on interest income. While a general reduced rate would apply, certain types of interest would be subject to even lower rates or a complete exemption. For example, interest paid on the sale on credit of machinery or equipment would benefit from a lower rate, while interest paid to a pension fund or to the government of the other country would be exempt from withholding tax.

Royalties

The proposed treaty would set a reduced withholding tax rate on royalties. This rate would apply to payments for the use of, or the right to use, various forms of intellectual property, including industrial, commercial, or scientific equipment; patents, trademarks, and secret formulas; and copyrights of literary, artistic, or scientific work.

Business Profits

The “permanent establishment” (PE) concept limits a country’s right to tax the business profits of an enterprise from the other country. An enterprise’s profits can only be taxed in the other country if it carries on business through a PE situated there. A PE is generally defined as a fixed place of business, such as an office, factory, or branch. Only the profits attributable to that PE can be taxed by the host country.

Income from Employment

For individuals, the treaty includes a version of the common “183-day rule” for income from employment. Under this provision, income earned by a resident of one country from services performed in the other country is taxable only in the country of residence. This exemption applies if the individual is present in the other country for 183 days or less in any 12-month period, the remuneration is paid by an employer who is not a resident of the other country, and the remuneration is not borne by a permanent establishment of the employer in the other country.

The US Saving Clause

A standard feature in U.S. tax treaties is the “Saving Clause.” The clause allows the United States to tax its citizens and certain residents as if the treaty did not exist. This means a U.S. citizen living in Argentina generally cannot use the treaty’s provisions to reduce their U.S. tax liability on worldwide income. The purpose of the Saving Clause is to preserve the U.S. right to tax based on citizenship.

While the clause is broad, it is not absolute, as specific articles are carved out as exceptions. The benefits of these excepted articles remain available to U.S. citizens. Common exceptions include articles related to social security payments, non-discrimination, and the mutual agreement procedure, which provides a mechanism for resolving treaty-related disputes.

Claiming Treaty Benefits and Disclosures

For non-U.S. persons earning income from U.S. sources, the primary tool for claiming reduced withholding tax rates is IRS Form W-8BEN, “Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting.” This form is provided to the U.S. withholding agent, such as a bank or brokerage firm, to certify the recipient’s foreign status and claim the applicable treaty rate on income like dividends or interest.

For U.S. persons, the primary mechanism for avoiding double taxation, both now and after the treaty is ratified, is the Foreign Tax Credit. This credit is claimed on IRS Form 1116, “Foreign Tax Credit,” and allows a U.S. taxpayer to reduce their U.S. income tax liability by the amount of income taxes paid to a foreign country. The credit is limited to the amount of U.S. tax attributable to the foreign-source income.

In certain situations, a taxpayer who takes a position that a tax treaty overrules or modifies a provision of the Internal Revenue Code must disclose that position to the IRS. This is done by filing Form 8833, “Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b).” This form is required when a taxpayer claims that a treaty provision allows them to be treated as a non-resident of the U.S. or exempts certain income from U.S. tax in a way that conflicts with domestic law.