- 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.
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:
- Free Area, which comprises Antarctic and South Atlantic Islands
- Special Custom Area, which comprises the Island of Tierra del Fuego
- 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:
- 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
- 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.