Draft Law to Modify Corporate Profits

Dear Partners,

We are contacting you to convey some news regarding the Draft Law to Modify Corporate Profits.

Yesterday, the Budget and Finance Commission of the Chamber of Deputies of the Nation met to discuss the Modification of the Income Tax for companies (2-PE-21) and reached a majority opinion. The project establishes a scale of the profit rate based on three profit brackets, by which the net profits of:

• up to $5 million, 25% rate applies
• between $5 million and $20 million, a 30% rate applies
• more than $20 million, a 35% rate applies

From the presenttation of the bill in the National Congress, the UIA communicated both to the Executive Branch (Chief of Staff, Ministry of Economy, AFIP and Ministry of Production) and to the Legislative Branch (Presidency of the Chamber, presidency of the Commission and Presidents of political blocks among other deputies) the technical report. It exposes the reasons why the bill under consideration is deeply harmful to the productive sector, investment and the generation of formal employment in general and to the industrial sector in particular. The following points were expressed to the authorities (the details of which can be found in the attached report):

• Argentina has a high tax burden that reaches 44% on the formal sector and a high rate for the reinvestment of profits (ARG: 30% vs. LAC: 25% vs. OECD: 23 %)
• Financing to the private sector is the lowest in the region (ARG: 10.8% of GDP vs. LAC: 55.7%). For this reason, retained profits are one of the main sources of business investment in Argentina. Therefore, increasing the profit rate again is an obstacle to the development of investment, activity and formal employment.
• If the project is approved, it would be the fourth modification of this tax in the last 10 years and would imply an increase of 10 p.p. of the rate (from 25% to 35%). Both factors make planning impossible for any company and the predictability of the economy.
• This project generates an additional tax pressure of $320,821 million, of which $96,246 million comes from the industry. Besides, the companies that will see the rate increased to 35%, in the industrial sector represent approximately:
  • 7,000 industries (+75 people)
  • 76% of formal employment
  • 87% of the wage bill
  • 80% of the collection of this tax
• No company will see its rate reduced compared to the 25% that should apply in 2021 according to the 2017 reform.
• Reducing the rate for micro and small businesses is necessary, but this must occur in conjunction with a more comprehensive competitiveness package (financial, labor, tax). This project is a new increase in tax pressure on the formal sector of the economy, which is what drives the rest of the sectors.
• The tiesCurrent mpos demand active measures to encourage investments and in favor of production and formal work. The bill is counterproductive to this objective.

In order to account for the negative impact it will have on local economic activity, we at the entity appreciate the efforts made to disseminate the attached technical report and the previous messages to the Governors and national deputies of each province, regarding the treatment of the bill in the Chamber of Deputies.

For more information, contact the Tax Policy Department (lucioc@uia.org.ar/tributaria@uia.org.ar) and the Department of Legislation and Parliamentary Relations (falcalde@uia.org.ar/legislacion@uia.org.ar ).