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In brief

  • Resolution No. 625/2022 (“Resolution“) of the Secretary of Energy (“Secretary“) included new hydrocarbon ventures in the regime of tax and customs benefits created by Law No. 19,640 (“Law“) for the Province of Tierra del Fuego (“Regime“).
  • The Regime refers to the Special Custom Area and include: a) exemptions of federal taxes applicable to activities or operations to be performed in the Special Custom Area or upon goods located in the Special Custom Area; and b) customs benefits applicable to the reception or delivery of merchandise that a company located in the Special Custom Area can make from or to companies located in any of the other operative areas. The exemptions apply to the income tax, value-added tax (VAT) and excise tax.

In focus

On 16 August 2022, the Resolution was published in the Official Gazette, whereby new hydrocarbon ventures were included in the Law for the Regime.

1. Tax incentives of the Law

For purposes of the Law, Argentina is divided into the following three operational areas:

  1. Free Area, which comprises Antarctic and South Atlantic Islands
  2. Special Custom Area, which comprises the Island of Tierra del Fuego
  3. Continental Territory

The tax incentives mentioned below shall refer to the Special Custom Area and include: a) exemptions of federal taxes applicable to activities or operations to be performed in the Special Custom Area or upon goods located in the Special Custom Area; and b) customs benefits applicable to the reception or delivery of merchandise that a company located in the Special Custom Area can make from or to companies located in any of the other operative areas. In fact, this type of transaction shall be considered as an export-import operation. The exemptions apply to the income tax, VAT and excise tax.

The analysis of the customs benefits requires a first distinction between imports and exports, and a second distinction if the operation goes to or from the Special Custom Area, taking into account that, as we mentioned above, Special Custom Area is considered a jurisdiction different from the Continental Territory. Also, the origin and destiny of the goods (raw materials and finished products) should be considered.

For purposes of this analysis, it is important to point out that exports are subject to export duties and imports are subject to import duties, VAT and statistical tax.

2. The Resolution

2. 1. Classification as “new hydrocarbon ventures”

The Resolution establishes that “new hydrocarbon ventures” will be considered as those projects that commit to the following minimum investment:

  1. USD 250 million in offshore projects, in hydrocarbon areas under the jurisdiction of the province of Tierra del Fuego, Antarctica and South Atlantic Islands and/or in the areas adjacent to the Argentine Territorial Sea and the subsoil of the continental shelf under national jurisdiction within a maximum term of four years
  2. USD 10 million in onshore areas under the jurisdiction of the province of Tierra del Fuego, Antarctica and South Atlantic Islands within a maximum term of four years.

It is important to note that in addition to committing the aforementioned amounts, the new hydrocarbon projects must contemplate the addition and development of reserves with the construction of new productive infrastructure, the expansion of production capacity, compression and treatment of existing plants, or the installation of new ones for the necessary conditioning for the transportation and commercialization of oil and gas production.

Additionally, they must involve the development of infrastructure for the transportation of liquid and/or gaseous hydrocarbons, as well as industrialization projects and/or liquefaction or regasification of such hydrocarbons.

2.2. Adhesion to the Regime

The Secretary will evaluate the projects submitted for the purpose of requesting the adhesion to the Regime and will issue a decision on their categorization as “new hydrocarbon venture.” The benefits will become effective from the date or condition established by the Secretary in the resolution that categorizes the undertaking.

2.3. Effects on the production of hydrocarbons

The hydrocarbons produced as a consequence of the development of the activities included within the framework of a “new hydrocarbon venture” shall be deemed to be entirely produced in the Special Customs Area and shall enjoy the benefits set forth by the Regime.

2.4. Consequences of noncompliance

Failure to comply with the above explained requirements by the person requesting classification as a “new hydrocarbons venture” of a certain project — due to its fault or cause — may result in the project’s loss of such classification and therefore the loss of tax incentives established by the Regime.

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Author

Martin Barreiro is experienced in various areas of tax law. He is a member of the Buenos Aires Bar Association, the American Chamber of Commerce in Argentina, the Tax Sub-Committee and the Argentine Association of Taxation Studies. His extensive list of publications include "New Argentine Social Security System" for the International Company and Commercial Law Review and "The S.R.L. in the tax planning of US investors in Argentina" for the Economic and Tax Journal.

Author

Adolfo Durañona is managing partner of Baker McKenzie’s Buenos Aires office since 2013. He has extensive experience working on corporate and commercial transactions for companies in the oil & gas, mining and natural resources industries. Adolfo has authored several reviews for various publications — including Sweet & Maxwell — usually involving Argentinean investments and mining. He is ranked in Chambers and Partners as a Tier 1 attorney for Argentina, Energy & Natural Resources: Mining.

Author

Roberto Grané is a transactional and regulatory partner in Baker McKenzie’s Buenos Aires office. He has been recognized as a leading practitioner by Chambers Latin America. Clients benefit from his more than 20 years of extensive domestic and international experience. Prior to joining Baker McKenzie, Roberto served as in-house counsel to one of the major telecommunications companies in Argentina, and a law clerk with the Civil Courts of Buenos Aires. He is a professor of contract law at the Buenos Aires University and a visiting professor in several local universities.

Author

Juan Pablo Menna is a partner in the Tax Practice Group in Baker McKenzie, Buenos Aires. He is a member of the Buenos Aires Bar Association and the Argentine Association of Fiscal Studies, and was a professor in Austral University.