Tax treatment of foreign trust for Argentineans under the New Tax Reform

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The last working day of 2017, a tax reform was published and entered into force. This tax reform amended, among others, the Income Tax Law and, in particular, included new rules for Argentine settlors and beneficiaries of foreign trusts. This is confirmation that Argentine recognizes foreign trusts that are correctly structured. The general rule is still that the local beneficiary should include in his tax return any payment made by the foreign trust during the fiscal year. Put differently, if there is no payment by the trust, there is no income for tax purposes. Tax Authorities challenged this tax treatment when they considered the trust was a sham. For example, in ruling Nr 9 of 2013, Argentine Tax Authorities established that the assets of a trust are not assets of the beneficiary until the moment of the actual distribution by the trustee to the beneficiary. Therefore, the beneficiary is not taxed over the trust assets. But, based on the economic reality principle (similar to the substance over form rule), Tax Authorities would consider that the trust assets belong to the beneficiary in case, the beneficiary has so much ‘decision power’ to control the assets as if he were the owner. Lawmakers had this criterion in mind when drafting and discussing the tax reform.