Private mergers and acquisitions in Argentina: overview
Q&A guide to private mergers and acquisitions law in Argentina.
The Q&A gives a high level overview of key issues including corporate entities and acquisition methods, preliminary agreements, main documents, warranties and indemnities, acquisition financing, signing and closing, tax, employees, pensions, competition and environmental issues.
To compare answers across multiple jurisdictions, visit the Private mergers and acquisitions Country Q&A tool.
This Q&A is part of the global guide to private acquisitions law. For a full list of jurisdictional Q&As visit www.practicallaw.com/privateacquisitions-guide.
Corporate entities and acquisition methods
Restrictions on share transfer
As a general principle there are no restrictions on share transfer except where there is a need for anti-trust approval (see Question 34).
The bye-laws and any shareholders' agreement need to be checked for any rights shareholders may have to make offers before a share transfer or other restrictions on share transfers, including drag and tag-along rights.
In some regulated sectors, such as banking, utilities, insurance and communications, acquisitions by local or foreign investors are subject to approval by regulatory agencies.
Foreign ownership restrictions
Generally, foreign persons investing in Argentina have the same status and the same rights as local investors. However there are certain industries, such as aviation, in which foreign persons are not allowed to own a majority of the shares. Broadcasting is also restricted, as foreign ownership of Argentine broadcasting companies is limited unless reciprocity treatment applies.
Also, foreign persons who wish to purchase land located in a frontier zone and other security areas, or companies owning such land, must obtain prior approval from the government. Acquisition of rural land by foreigners is limited to the equivalent of 1,000 hectares of premium agriculture land (Law 26,737 and its regulations).
Share purchases: advantages/asset purchases: disadvantages
A share purchase has the following advantages:
Tax benefits (for example, promotional regimes, tax exceptions) will not generally be affected by the purchase.
The major advantage is that a share transaction is not subject to excise tax, value added tax (VAT) (which in some cases has an important financial cost, as it can take several years to recover the credit generated in an asset sale transaction) and gross revenue tax.
No notary fees and probably no registration fees are triggered.
Acquiring shares is less expensive, quicker and less complex than an asset acquisition.
Any tax loss carry-forward remains in the target company, so it can be used to offset against future profits.
The sale of private company shares is subject to income tax or capital gains tax (see Question 27).
The contingent liabilities of the target company are transferred to the buyer.
An asset purchase has the following disadvantages:
The buyer cannot amortise goodwill.
VAT is usually levied in an asset disposal (in contrast with a share purchase) so the buyer must bear the cost increase and the financial cost of recovering the VAT.
The seller's tax benefits (such as promotional regimes and tax exemptions) may not be available or transferred to the buyer.
Asset sales are usually more expensive and complex than share purchases.
Income tax is levied on an asset sale, unless the proceeds are reinvested in an asset replacement.
The sale of assets is subject to gross revenue tax.
The seller is likely to be liable for tax on debits and credits in bank accounts on the purchase price, since payments are generally made between local bank accounts.
Excise tax applies to the sale of some movable assets located in Argentina.
If any real estate property transferred, a notary is needed.
Contingent liabilities are not transferred to the buyer.
Share purchases: disadvantages/asset purchases: advantages
A share purchase has the following disadvantages:
The buyer takes on the target company's contingent liabilities and the tax statute of limitation is six years.
Goodwill paid for and the shares cannot be depreciated.
The buyer inherits the tax value of the assets of the target, as there is no step-up of the assets of the acquired company for tax or accounting purposes.
There is no group tax system in Argentina, so the cost of the debt the buyer incurs cannot be set-off against the profits of the business of the acquired company.
The buyer does not usually pay extra (or if it does, it is not the full amount) for any tax loss carry forward by the target. The buyer does not usually pay for a VAT credit that can be recovered after a year from the closing of the acquisition.
An asset acquisition has the following advantages:
Depreciation of the fixed assets is available at the stepped-up value.
There is no transfer of contingent liabilities to the buyer. National tax contingencies can be set aside if a special procedure is followed, which includes prior notification to the tax authorities to grant this exemption and 90 day-period to notify any tax liability.
The buyer can deduct interest charges on debt financing directly.
The seller can benefit from a tax deferral on proceeds that are reinvested in a capital asset replacement.
Escrows are rarely used in an asset sale because few contingencies are transferred to the buyer.
In some transactions, due to the amount of VAT credits and tax loss carry-forward the seller has, there are no significant tax savings compared to a share deal.
The sale of private companies by public auction is uncommon. However, private tenders are very common when selling private companies. Investment bankers, advisory firms or other financial advisers are sometimes used by both the buyer and seller to determine the fair value for companies or assets in these types of tenders. There is no regulation governing private tenders.
Regulated auctions can take place when selling assets of debtors under foreclosure, bankruptcy or judicial reorganisation procedures. Several years ago, regulated auctions were used to sell government-owned shareholding participations in companies.
Letters of intent
A letter of intent (or heads of terms) broadly sets out the main contractual terms of the intended sale. These terms typically include:
A description of the target company or assets.
The estimated purchase price and any adjustments to it, for example, working capital.
The types of warranties that may be given.
Potential non-compete covenants.
Remedies for breach of the agreement.
Ancillary agreements that may need to be negotiated, for example employment agreement with certain key employees.
Letters of intent often include an indicative timetable and exclusivity and/or confidentiality (or non-disclosure) provisions. Other than in relation to confidentiality and exclusivity provisions, a letter of intent is not normally (and is specifically stated not to be) legally binding.
These allow a buyer the right to negotiate exclusively with the seller for a period of time about acquiring the company or assets. Typically, a seller will agree to terminate any current talks with third parties, not solicit any further offers, and not provide any information to any third party relating to the target company or its assets.
Exclusivity agreements are rarely used because the letter of intent normally includes exclusivity provisions.
It is important that the sellers, their advisers and the company's employees are all bound by the exclusivity provisions.
Confidentiality and non-disclosure agreements are customary, and are either executed as a separate agreement or included as a provision in the letter of intent. Their purpose is to make the potential buyer maintain confidentiality in relation to the potential sale of the company or its assets, in relation to the information that the sellers provide about the target company. They are also used to ensure that buyers do not try and poach any employees or approach any suppliers or customers of the target company.
Increasingly non-disclosure agreements are mutual, so that the seller is also under an obligation to maintain confidentiality and not disclose any information that the buyer provides in relation to its business. Both seller and buyer must ensure that the agents, advisers and employees of the other side are also bound by the non-disclosure requirements.
If the transaction does not proceed, it is important that the seller can:
Retrieve all documentation that the buyer received.
Require the buyer to destroy any documentation it has that derives from the information which has been sent to it or which is not capable of being physically returned, including deleting copies of such information on its IT systems.
In an asset sale, several liabilities can follow depending on how the transaction is structured.
Labour liabilities are transferred regardless of how the asset sale is structured.
Tax liabilities can be limited by following a special procedure. The liability of the buyer for tax debts that were not assessed or notified by the authorities at the date of the transaction expires within three months, if the tax authorities are notified of the transfer agreement at least 15 working days before the date of the transaction. Once informed, the tax authorities have 90 days to establish whether the seller has any tax debts and demand payment for them. Both the seller and the buyer are jointly and severally liable for tax debts demanded by the authorities during this period.
If the tax debts declared differ substantially from those disclosed by the seller before the agreement, the buyer can resort to the termination clause specifically designed for that purpose.
The buyer will be jointly and severally liable for debts that have been already assessed and notified by the tax authorities before and up to the date of the transaction.
Commercial liabilities are not transferred if the parties structure the deal as a transfer of a going concern and follow the special procedure established by law. Law 11,867 on the transfer of going concerns (the Bulk Sales Act) provides that notice of the transfer of a business and going concerns must be published for five business days in the Official Gazette and another daily newspaper in the jurisdiction of the seller's registered domicile.
If publication is carried out under the Bulk Sales Act, within ten calendar days a creditor can object to the transfer and request that the buyer deposits with the court the amount owed to him by the seller. This lasts for 20 calendar days to enable the creditor to obtain a stay from the court. The stay will apply only to the transfer of the deposited funds and not to the entire transaction.
The seller can secure a creditor's claim and release any monies deposited by presenting sufficient collateral to the court (for example, a credit insurance policy, pledge of bonds, or a mortgage).
If the buyer deposits the amounts claimed by the seller's creditors or the seller secures the claims, the agreement can be filed for registration with the Public Registry of Commerce on the first day after the twentieth calendar day following publication.
Not complying with this procedure will not render the asset purchase agreement null and void or voidable by the parties. The transaction will be valid and effective among the signatory parties. However, not complying with the Bulk Sales Act means that the agreement will have no effect on the seller's creditors, who can act as if the sale had not occurred. This means that the seller and the buyer are jointly and severally liable for the amounts owed to the creditors. The buyer's liability will be limited to the value of the assets involved in the transfer.
It is advisable to seek creditors' consent to the transfer in an asset sale to avoid making the seller and the buyer jointly and severally liable for the amounts owed (see Question 6).
Conditions precedent used in share purchase agreements are the same as those generally included in cross-border M&A transactions.
The most common conditions precedent included in a share agreement are the following:
That there has been no material adverse change since the share purchase agreement was signed.
Letters of resignation from legal representatives, directors and other key officers.
Corporate reorganisations to include or exclude assets and/or liabilities from the target company.
Waivers or consents required under material contracts or agreements.
Confirmation that there is no breach of representation or warranties.
Subscription of other ancillary documents (for example, transitional services agreement and escrow agreement).
Termination of particular agreements such as inter-company agreements.
Seller's title and liability
There is an implied warranty of the seller's title to the shares offered for sale (evicción) (Articles 1044 to 1050, Civil and Commercial Code). This applies to any sale, whether of goods, shares or any other asset. However, this is not a mandatory rule, and parties can agree in writing to enhance, restrict or even exclude the seller's liability for any defect in the legal title of shares (Article 1036, Civil and Commercial Code).
In private companies, title to the shares is evidenced by entries in its share register book, which is not publicly available and must be kept at its headquarters. Buyers must verify the share register book, check whether it is updated and extract copies from it, either signed by the corporation's officers or certified by a public notary. The bye-laws of private companies, although publicly available through the Commercial Registry, do not usually disclose the identity of the shareholders or their equity interest.
In limited liability companies, the bye-laws indicate the title to the quotas, the names of each quota holder and the number of quotas held by each of them. The bye-laws and any transfer of quotas must be registered with the Commercial Registry and are publicly available.
It is common to include a seller's representation in the agreement, in addition to the general implied warranty, reinforcing:
That the seller is the sole and exclusive owner of the shares.
The absence of any liens and encumbrances (or the specific disclosure of liens and encumbrances affecting the shares).
Parties must act in good faith during the negotiation of agreements (Article 991, Civil and Commercial Code). Unless the parties have agreed differently, to make a seller liable for pre-contractual misrepresentation, misleading statement or similar matters the buyer will likely need to prove it suffered a loss due to the misrepresentation. It is common practice to execute preliminary agreements at an early stage during the negotiation of share purchase transactions (for example, letter of intent, term sheets and memoranda of understanding) expressly stating that:
The negotiation and its preliminary terms are not binding.
Parties are not liable if the deal does not go forward and that each of them will bear its own costs incurred during the negotiation.
Advisers are unlikely to be liable for pre-contractual misrepresentation, misleading statements or similar matters. They are not sellers but service providers, usually retained by the seller. If a loss is suffered by the buyer in connection with a misrepresentation or a misleading statement made by an adviser, the buyer will probably seek compensation from the seller. To hold an adviser accountable to the buyer, it is usually necessary to insert a specific provision covering this in a preliminary or definitive agreement, which is signed by the adviser (this is not usual).
In a share sale, typical documents include:
The sale and purchase agreement. The first draft is usually prepared by the seller when the deal is a private tender.
Board minutes, dealing with change of directors, and approval of share transfers on closing.
Stock transfer form(s).
Sometimes new employment contracts for certain key employees.
Any change of control consents.
In an asset sale (as in a share sale), there is a sale and purchase agreement (sometimes called an asset sale or business sale agreement) to transfer the assets and liabilities. The first draft is usually prepared by the seller. In addition, there is usually:
Board minutes, dealing with approval of asset sale.
Notices of assignment of contracts and/or novation agreements where necessary.
Assignments that may be required for registered intellectual property, goodwill, software licences and leased property.
Transfers of real estate property, where relevant.
Sometimes, new employment contracts for certain key employees.
In both a share sale and an asset sale, transitional services agreements may be required, to the extent that the target company or the businesses being sold cannot operate on a standalone basis immediately following closing of the sale. The transitional service agreement often contains provisions relating to, for example, payroll, IT, insurance, legal and administrative services. Each agreement is highly transaction-specific.
In most transactions, agreements used to acquire private companies follow a similar format to purchase agreements used in the US and elsewhere.
The main substantive clauses of a share or asset purchase agreement include:
A description of the shares being sold or the assets and liabilities. Identification of the retained assets is particularly important in carve-out transactions.
The type and amount of consideration being paid and the manner and timing of payment.
A purchase price adjustment mechanism (more typical in a share purchase, adjusting for matters such as working capital at closing, or providing for consideration to vary depending on post-closing performance of the business).
Representations and warranties covering a wide range of business and financial matters (see Question 14).
Indemnities given by the parties for breach of representations or other covenants.
Covenants given by the seller to the buyer covering the time between signing and closing, such as how the business will be conducted during that period.
Closing conditions (such as anti-trust and other required approvals).
Mutual confidentiality undertakings, non-solicitation and non-compete undertakings by the seller (if applicable).
Choice of law and dispute resolution.
Asset deals will also include detailed provisions on contractual relationships with third parties and how these are treated if any rights and obligations under the arrangements cannot be transferred, or a relevant third party does not consent to the transfer.
In principle, share purchase agreements where the underlying shares are in local companies are ideally governed by Argentinian law.
However, a choice of a foreign governing law is generally considered valid when the transaction has a material international component, such as one of the parties having its domicile abroad.
In any event, regardless of the choice of law under a share purchase agreement, certain mandatory legal provisions apply given their status as public policy, including:
Warranties and indemnities
Warranties and indemnities are an important part of any acquisition agreement, whether a share sale or an asset sale. In relation to a share sale, warranties typically cover:
The capacity of the seller(s) to enter into the agreement and sell.
No law, judicial or administrative decision is an impediment to implementing the transaction.
That the seller has obtained all required waivers, authorisations and approvals for the transaction.
That the company is duly organised and validly exists.
The share capital of the company and group structure.
Financial accounts and records.
Changes since the last financial statements.
Warranties relating to assets, such as condition and adequacy for the company's current business.
Intellectual property rights.
Contracts, including suppliers and customers.
Compliance with laws.
In an asset sale, warranties are similar but with a focus on the assets and liabilities being acquired. The measure of damages for breach of a warranty in an asset sale is usually the same as for a share sale.
In both share and asset sale agreements, remedies for breach of warranty often involve reimbursing the loss suffered by the buyer, subject to any agreed limitations on the seller's liability. The sale agreement usually addresses the following issues related to indemnification:
Survival (the term following closing of the transaction when indemnification is available).
Identification of claims and who will be indemnified.
Limitations on the indemnification obligations of the parties.
Use of escrowed funds.
Limitations on warranties
Typically, limitations on warranties include:
Time periods by which a claim can be made (see Question 16).
A cap on liability.
De minimis levels before claims can be made, on an individual and an aggregate basis.
Provisions relating to how to conduct a dispute that may arise relating to a breach of warranty and a third party claim.
A general obligation to mitigate any loss suffered.
Other restrictions include:
The seller qualifying warranties within the knowledge of certain individuals.
Requiring the buyer to exhaust its rights against insurers and other relevant third parties.
Excluding the seller's liability for contingent claims until or unless they crystallise.
Certain core or fundamental warranties (for example, relating to the seller's title to the shares or assets being sold) are typically not subject to the same limitations as those that apply to business warranties.
Qualifying warranties by disclosure
Warranties can be qualified by disclosure:
As set out in the share purchase agreement or its exhibits.
As disclosed in the (virtual) data room or otherwise to the buyer (this is often qualified so that disclosure is made in a fair manner within the meaning of what the parties agree will be "fair disclosure").
Of circumstances about which the buyer had actual knowledge.
Limitations on disclosure do not usually apply to title to the shares, capacity to enter the agreement and any tax indemnity, or to other material warranties regarding the specific business of the target.
The main remedies are:
Damages for breach of contract (and possible claims for misrepresentation).
Termination. Sometimes the right to terminate for breach of warranty is limited to the period between signing and completion, and is not available after completion.
Time limits for claims under warranties
The period of time in which a warranty claim can be made is usually subject to heavy negotiation. Two to three years is about normal for general claims, but it can be longer or shorter.
A longer warranty period can be negotiated for key warranties (for example, in relation to tax, environmental provisions and intellectual property, warranty periods usually mirror the statute of limitations).
Consideration and acquisition financing
Forms of consideration
Cash is the main form of consideration offered in share sales. Sometimes the buyer's stock or equity is also offered. Payments can be made in a lump sum or in instalments. If made in instalments, parties can establish mechanisms to allow offsetting of indemnity claims against future payments.
Sometimes cash retention or escrow accounts are used as security for indemnity obligations undertaken by sellers.
Contingent and earn-out payments are sometimes used in M&A transactions.
Factors in choice of consideration
The choice of consideration usually depends on factors such as:
The seller's willingness to participate in the potential growth in the value of the equity of the buyer after closing.
The inability of the buyer to fully finance the acquisition.
A listed stock corporation can raise cash to finance an acquisition by issuing new shares. The existing shareholders have, in general, pro rata subscription rights to such shares. If any shareholders do not exercise their pro rata subscription rights, the rest of them can increase their subscription proportionally.
Consents and approvals
The shareholders' meeting of public companies must first approve the share issue and then the company must obtain administrative approvals and consents from the National Stock Exchange Commission (Comisión Nacional de Valores) and the stock exchange on which the securities will be effectively traded.
The company must invite existing shareholders to exercise their pro-rata subscription rights to the shares and, eventually, the right to increase their subscription proportionally.
Requirements for a prospectus
Before publishing a notice inviting its shareholders to subscribe to the capital increase shares, public companies must publish a prospectus. It must follow regulations issued by the National Stock Exchange Commission and contain specific information on the issuer to provide sufficient information to potential investors.
The concept of financial assistance is not expressly established. As a rule, target companies are not prevented from providing funds to potential buyers to finance the acquisition of their own quotas/shares, but the directors must generally be satisfied that the assistance is given in good faith and in the interests of the company. They must otherwise act consistently with their duty to act in a way that they consider in good faith and most likely to promote the success of the company for the benefit of its members as a whole.
There are no exemptions.
Signing and closing
In a share purchase with a delayed closing, the parties enter into a stock purchase agreement. Often, forms of ancillary documents or contracts to be delivered at closing are attached as annexures to the share purchase agreement. Typically, board resolutions approving the transaction and documentation that has been entered into are also signed at this stage.
In a share sale, the following are often produced and executed on closing:
Stock transfer form(s).
Any waivers or consents to give full and legal beneficial title.
Resignation letters from the directors and appointment letters for new directors.
Board meetings and minutes to record the formal transfer and resignations and appointments.
Any ancillary documents or contracts.
In an asset sale, the following are also typically produced on closing:
Title documents for all the assets being transferred (for example, in relation to a real estate transfer, the notary deed transferring the property).
Executed assignments of business intellectual property rights.
Consents from any third party to the assignment of intellectual property licences or any IT contracts and consequential licence arrangements.
Assignments or novations of any contracts being transferred.
Evidence of release and discharge of any security over relevant assets.
The formalities vary depending on the type of transaction carried out. All contracts must be executed by a person with authority to do so on behalf of the entity. Typically, authority is evidenced by a resolution of the board of directors or a power of attorney. Sometimes, although it is not always required, the signature of the parties to the share purchase agreement or asset purchase agreement is certified by a notary public.
In a share sale, most documents are private and do not require any formalities (except for powers of attorney).
In an asset sale, depending on the assets to be transferred, public deeds or special forms must be granted (for example, transfer of real estate, aircraft, cars or patents) and registered with the competent authorities.
Acquisitions of going concerns are subject to certain formalities and must be filed with the relevant commercial registries, and a notice must be published in the Official Gazette and in a newspaper (see Question 6).
The formalities for executing documents by foreign companies include notarising and apostille of the relevant document, usually a power of attorney. If the foreign company's place of incorporation is not a party to the Hague Convention Abolishing the Requirement of Legalisation for Foreign Public Documents 1961, the relevant document must be legalised by the Argentine consulate.
Except where a public deed or instrument is required, documents generated electronically are binding and enforceable if the signature requirement is fulfilled by a digital signature, assuring the authorship of the signature and that the content in the document remains unaltered.
Argentina is one of the pioneers of digital signature legislation in Latin America due to the approval of the Digital Signature Law in 2001. This recognises the legal validity of digital signatures as an instrument with technical and regulatory characteristics. The Digital Signature Law sets out the essential elements that a digital signature must have to be binding and enforceable. More recent law confirms the validity of digital signatures (section 288, Civil and Commercial Code).
A valid digital signature requires various technological standards (some applicable to signatories themselves, and others to certifying licensees), including using a secure signature creation device which must be certified as "qualified" by either a government authority or an approved certification service provider.
Since the use of digital signatures directly relates to the usability of digital certificates, no advances have been made in Argentina in the private sector, because no private companies have been registered as a certification service provider.
In contrast, the public sector has revealed a positive trend and some public agencies have become certification service providers, including the:
Federal Administration of Public Revenue (AFIP).
National Social Security Administration (ANSES).
National Office of Information Technologies (INTI).
So far, certifications have only been used for internal proceedings in these agencies.
The formalities required to transfer title to shares depend on the type of company.
In stock companies or corporations (sociedad anónima) the selling shareholder must inform the company in writing of the share transfer, stating the name of the buyer and his details. The company must then register the transfer in the company's shareholder book.
Transfers of quotas in limited liability companies are done through amendments to the company's articles of association. Transfers of quotas only bind third parties when the amendment to the articles of association is registered in the Public Commercial Registry.
The sale or transfer of shares or quotas in Argentinian companies may be subject to stamp tax, depending on how the transaction is structured. As a general rule, stamp tax is levied on transactions formalised in writing. To trigger the tax the written document containing the obligations must be autonomous, meaning that the document itself must be sufficient to prove the existence of the agreement. To be autonomous, the document must be signed by all parties and cannot depend on another document to be able to carry out the agreement.
Stamp tax is levied by each province or state, so the effective tax rate varies depending on the place in which the contract is signed or has its effect.
In the autonomous city of Buenos Aires, the applicable rate is 1%, levied on the value of the contract (the amount paid as consideration for the shares). In the province of Buenos Aires, the applicable rate is 1.2% but the taxable base must be increased by 20% if the value of the contract is denominated in a foreign currency.
If the asset acquisition or disposal is carried out by signing a contract that fulfils the requirements of the taxable event (see above, Share sale), stamp tax will apply to the transaction.
The tax rate varies between 1% to 3.5%, depending on the provincial jurisdiction in which the contract is signed or has its effect.
The use of reversal letters or offer letters to avoid stamp tax (which would otherwise trigger the tax in one or more jurisdictions) is not considered to be tax evasion, and is commonly used in certain transactions based on the nature of the deal involved.
A reversal letter is a contractual mechanism in which one party sends a written offer. The offer establishes that it is considered to be accepted if the recipient performs a specific positive action (for example, payment or delivery of goods). The contractual obligation is considered perfected when the party receiving the offer performs the action foreseen in the written offer. The Supreme Court of Justice has declared in several cases that the reversal letter is a legal contractual mechanism and that stamp tax cannot be levied on it.
This mechanism is rarely used in medium to large transactions.
Reversal letters or offer letters cannot be subject to stamp tax (see above, Share sale). However, there are no exemptions from transfer taxes on a transfer of real estate because it must be made by notarial deed, which is always subject to stamp tax.
The sale or transfer of shares or quotas in Argentinian private companies is subject to income tax and/or capital gains tax.
If the share sale is carried out by a natural person or a non-resident (for tax purposes), the applicable rate is 15% (section 90, Income Tax Law).
For natural persons, the tax base is the difference between the consideration obtained for the sale or transfer and the cost paid to acquire the shares. For a non-resident, the taxable base is presumed to be 90% of the gross proceeds of the sale or transfer, unless the taxpayer opts to consider the taxable base as the difference between the entire gross profit and the cost paid to acquire the shares, including all expenses incurred locally.
Income tax also applies to the sale of shares in a local company between foreign residents. In this case, the buyer must withhold the tax and pay it to the local tax authorities.
A share or quota sale or transfer by local companies is subject to income tax and the tax rate is 35% of the profits. In general, profit is determined by the difference between the acquisition price or cost of incorporation, and the sale price.
If the sale or transfer generates a tax loss, this can only be set against profits incurred in the sale or transfer of shares or quotas within the statute of limitations for that loss.
Asset sale transactions are subject to several taxes including the following:
Income tax. This is levied on the transaction profits. The applicable rate for local companies' profits is 35%.
Value added tax. The sale of movable assets located in Argentina is generally taxed at a VAT rate of 21%.
Gross revenue tax (Impuesto sobre los Ingresos Brutos). This is a provincial/state tax applied on the gross income generated by the transfer of most of the assets. Some jurisdictions have an exemption for the transfer of certain assets (for example, the Province of Buenos Aires exempts the transfer of fixed assets). The applicable rate varies, depending on the jurisdiction in which the assets are located (or the transfer takes place), ranging anywhere between 3.5% and 5%.
The transaction may be exempt from the above taxes if the transfer takes place within the same economic group and other requirements/conditions are also meet.
The sale or transfer of shares or quotas of public companies listed on a stock exchange in Argentina or abroad is exempt from income tax and capital gains tax.
Also, the sale by foreign shareholders of a foreign holding company that only has interests in Argentine companies is exempt from income tax or capital gains tax in Argentina, unless there is no economic substance and/or business purpose for using the holding company, in which case the tax authorities can question and disregard this structure.
Although there are no specific exemptions or reliefs available in an asset sale to a third party/unconnected buyer, there are a number of ways a seller can try to minimise corporation tax that would otherwise apply to the sale. For example:
The seller can seek to allocate more consideration to those assets with a higher tax base cost (to reduce the gain).
Increasing the consideration allocated to land, fixed plant and machinery and intellectual property if the seller intends to reinvest part of the consideration in similar replacement assets that qualify for rollover relief. This defers any tax charge until a subsequent disposal of the replacement assets.
However, each of these must be balanced with the buyer's tax position/objectives, as the amounts allocated to various assets form the buyer's tax base cost in those assets, and will affect the amount of tax allowances available to it.
The tax on debits and credits in bank accounts (Impuesto a los Débitos y Créditos en Cuentas Bancarias, ICDCB) is a financial tax commonly known as tax on "cheques" (Impuesto al Cheque).
This tax is triggered by credits to or debits from bank accounts in Argentinian financial institutions. In this case, the applicable rate is 0.6% of the gross amount of the credit or debit.
Some payments made in cash are also covered by this tax, as set out by law (for example, it is also triggered when a transfer of value should have been made through a bank account but was not). In this case, the applicable rate is 1.2% of the gross amount of the transfer.
Financial institutions must withhold the amount of tax due, but individuals or companies are liable when a payment made in cash triggers the tax.
If the applicable rate is 0.6%, 34% of tax paid only on credits in bank accounts is considered a tax credit for income tax or minimum presumed income tax.
If the applicable rate is 1.2%, 17% of tax paid on cash payments is considered a tax credit for income tax, or minimum presumed income tax.
There are no obligations to consult employees or their representatives or to obtain employee consent to an asset sale. However, it is advisable to inform the employees and their representatives of the sale.
There are no obligations to inform or consult employees or their representatives or to obtain employee consent to a share sale.
In a business sale, employees have no special protection against dismissal. However, both the seller and buyer must respect any special protection in force at the time of the sale based on other reasons, such as illness or maternity leave.
In a share sale, employees have no special protection against dismissal. However, both the seller and buyer must respect any special protection in force at the time of the sale based on other reasons, such as illness or maternity leave.
Transfer on a business sale
In an asset sale, the employees automatically transfer with the business. The transferred employees must be informed of the asset sale and the buyer must assume the obligation to maintain the same labour conditions and benefits that the employees agreed with the seller (for example, seniority, remuneration and working hours). If any of these conditions or benefits is changed without the employees' prior consent in writing, the employees can consider themselves dismissed by the buyer and claim payment of severance compensation. Several and joint liability will apply to the seller in this scenario.
Private pension schemes
It is common for certain employees working for multinational companies in Argentina to participate in private pension schemes established by their employers. This is especially the case with white collar employees hired by multinational companies, since this type of scheme is generally implemented on a global basis.
Pensions on a business transfer
According to local labour law, every benefit an employee receives for tasks performed for the employer is considered part of the employee's remuneration. Therefore, both remuneration and benefits must be maintained in a business transfer. If not, an employee can consider himself harmed and dismissed by the employer. However, if in a business transfer, an employee agrees in writing to new employment conditions with the buyer, a pension plan can be waived or modified. In this scenario it is advisable either to pay the employee monetary compensation for the loss of the pension plan, or compensate the plan with another benefit. It is also advisable to implement a way in which an employee can withdraw the existing funds from his current pension plan account.
Mergers and acquisitions fall within the definition of "economic concentration" provided under the Competition Law (Law 25,156). Economic concentration deals are subject to control and include:
Mergers and acquisitions.
Acquisition of a business concern of an entity.
Acquisition of equity or debt granting control of or substantial influence over the issuing company.
Acquisition of all or substantially all of the assets or interests of a company.
Any other undertaking or agreement resulting in the grant of assets of a company or of influence on the management of a company.
Prior approval from the relevant governmental agency is required for mergers and acquisitions where the total amount of turnover of the acquiring and target companies (including the domestic market and their exports) exceeds ARS200 million (the government submitted to Congress a proposed bill to increase this amount to ARS2,250 million on 27 September 2016, and this amount is proposed to be adjusted by local inflation). The aggregate amount includes the turnover of the corporate group that controls the acquiring company. The aggregate amount includes the turnover of their subsidiaries where the parent company or acquiring company:
Own more than 50% of the issued equity.
Own a majority vote.
Can appoint the majority of the members of the board of directors.
Can direct the activity of the subsidiary.
These same principles apply to the subsidiaries of the target company. The aggregate amount does not include VAT and direct taxes. The current Competition Law, as amended, does not contain provisions addressing foreign-to-foreign or international mergers and acquisitions.
Under the Competition Law, the following situations (exceptions) do not require prior approval:
A parent company acquiring more equity in its subsidiary, where it already owns more than 50% of the equity in the subsidiary.
Acquisition of debt securities not granting voting rights.
Acquisition of a single company by a foreign entity not previously owning Argentine assets or stock.
Acquisition of wound up companies not having conducted any business in the previous year.
Deals otherwise requiring prior approval, where the amount of both the deal and the value of Argentine assets being acquired do not exceed ARS20 million individually, unless aggregate deals were concluded during the past 12 months exceeding that figure, or during the last 36 months exceeding ARS60 million (the government submitted to Congress a proposed bill to increase these amounts to ARS300 million and ARS900 million on 27 September 2016, and these amounts are proposed to be adjusted by local inflation).
Notification and regulatory authorities
Economic concentrations must be notified for examination by the Competition Defence Commission before or within a week from the date of one of the following events taking place:
Completion of the agreement.
Publication of the purchase or swap.
Acquisition of a controlling participation.
Economic concentrations are approved if they do not restrict or distort competition by affecting the "general economic interest".
There is a constitutional principle under which all inhabitants have the right to a healthy environment and the duty to preserve it. Anyone who contaminates the environment must repair the damage.
The owner and occupier are jointly and severally liable for carrying out and paying for investigation and clean-up of the contamination, regardless of who caused it. The party that was not responsible for the contamination can recover costs and expenses from the responsible party.
Previous owners or occupiers can be liable for contamination they caused in the past, because their responsibility does not end with the transfer of the property (cradle to grave liability).
This means that in an asset purchase, a buyer will be responsible for environmental liabilities under environmental laws regardless of what the parties agree in the asset purchase agreement.
In a share sale, the liability for environmental clean-up remains with the target entity and, indirectly, the buyer as the owner of the target entity.
To minimise environmental risks, both in asset and share deals, a buyer must undertake all appropriate enquiries, including performing a Phase 1 Environmental Site Assessment before closing the transaction. The buyer should also negotiate indemnification from a seller for any costs associated with the investigation and remediation of contamination that existed on the property before closing the deal.
Corporation tax on the sale of shares
Is corporation tax (or equivalent) generally payable by companies on the sale of shares? What is the typical corporation tax rate? Are there any exemptions?
The sale of shares in private companies is subject to income and/or capital gains tax.
The sale of shares is taxed at 15%, which can apply to 90% of the gross proceeds, or to the entire gross profit minus the amount paid to acquire those shares and locally incurred expenses.
A share sale by local companies is subject to income tax, and the tax rate is 35% of the profit.
Sale of public companies (listed locally or abroad) made by foreign companies or by individuals is exempt from income tax.
Description. An online source for Argentine legislation maintained by the Federal Ministry of Justice and Human Rights, available in Spanish only.
John O'Farrell, Partner
JP O'FARRELL Abogados
Professional qualifications. Argentina, 1991.
Areas of practice. Corporate; M&A; business transactions and reorganisations; commercial law; corporate governance; agribusiness; tax planning.
- Advising John Deere in the Argentine portion of the acquisition of the Precision Planting Business from Monsanto.
- Advising ANCAP (Uruguayan oil state company) in the search for a buyer or partner for a local publicly traded company.
- Advising an Argentine oil company in the acquisition and sale of an interest in an oil field.
Languages. Spanish; English
Professional associations/memberships. Buenos Aires Bar Association; International Bar Association.
Publications. Argentina chapters for the following:
- Doing Business in… Global Guide 2012 (co-author with Joaquín Zappa and others), Practical Law.
- Tax on Transactions 2010/11 (co-author with Martín Yannielli and others), Practical Law.
- Tax on Finance Transactions 2008/09 (co-author with Martín Yannielli and others), Practical Law.
- Corporate Governance and Director's Duties 2008/09 (co-author with Ignacio Sammartino), Practical Law.
- Mergers and Acquisitions 2007/08 (co-author with Ignacio Sammartino), Practical Law.
- Corporate Real Estate 2006/07 (co-author with Gonzalo Ballester), Practical Law.
Ignacio M. Sammartino, Partner
JP O'FARRELL Abogados
Professional qualifications. Argentina, 1991.
Areas of practice. Corporate law; M&A; anti-trust and competition; business and commercial agreements; banking.
Advising John Deere on the Argentine portion of the acquisition of the Precision Planting Business from Monsanto.
Advising ANCAP (Uruguayan oil state company) in the search for a buyer or partner for a local publicly traded company.
Languages. Spanish, English
Professional associations/memberships. Buenos Aires Bar Association.
Publications. Argentina chapters for the following:
- Doing Business in… Global Guide 2012 (co-author with John O'Farrell and others), Practical Law.
- Corporate Governance and Director's Duties 2008/09 (co-author with John O'Farrell), Practical Law.
- Mergers and Acquisitions 2007/08 (co-author with John O'Farrell), Practical Law.
- Corporate Governance and Director's Duties 2006 (co-author with John O'Farrell), Practical Law.
Gonzalo C Ballester, Partner
JP O'FARRELL Abogados
Professional qualifications. Argentina, 1991.
Areas of practice. Corporate law; M&A; business and commercial agreements; real estate.
- Advising an Argentine chemical company in the sale of its Brazilian distribution subsidiary.
- Advising an Argentine oil company in the acquisition and sale of an interest in an oil field.
Languages. Spanish, English
Professional associations/memberships. Buenos Aires Bar Association.
Publications. Argentina chapters for the following:
- Doing Business in… Global Guide 2012 (co-author with John O'Farrell), Practical Law.
- Corporate Real Estate 2006/07 (co-author with John O'Farrell), Practical Law.