Valuation Issues in Argentina

By: William Hughes

Valuation Issues in Argentina

This is a high-level summary of issues likely to be relevant to international groups with operations in Argentina or that are considering transactions in Argentina. The following overview was prepared by VRG member firm R. Biasca & Asociados.

Argentina has five main valuation practice characteristics:

1. High inflation (in fact, measured at more than 40% in 2018) creates a periodical need to revalue physical assets

2. The existence of a governmental organization that is in charge of valuations related to the Government and has defined some valuation methodologies

3. A very limited amount of Argentine companies offer stocks in Buenos Aires or New York

4. Small financial markets

5. A “valuation profession” does not necessarily exist, instead, valuation engagements are considered by a wide range of registered professionals in different fields.

Private Company Valuations in Argentina

The Inspección General de Justicia is the Argentine government agency that regulates private, commercial companies. Between its regulations, there are some that relate to the valuation of assets and liabilities.

There are two standard methodologies approved by the Federación de Consejos Profesionales de Ciencias Económicas (FACPCE; Argentine Federation of Professional Councils of Economic Sciences), which is a professional association for accountants, economists, and actuaries: (a) technical revaluation and (b) revaluation based on IFRS.

The Comisión Nacional de Valores is another institution that regulates companies in the Buenos Aires Stock Exchange. It indicates that the Board of Directors should hire independent valuation experts and it is responsible for the process. The experts hired cannot be managers, employees, partners, directors, or auditors.

Certain firms, such as banks and insurance companies, have their own control agencies.

Tax Reform in Argentina

The government of Argentina enacted comprehensive tax reform (Law No. 27,430, Decree 1112/2017 – 29 December 2017) that became effective on January 1, 2018. The changes aimed at promoting investment and competitiveness, moving Argentina towards a more equitable, efficient, modern tax system, and is intended to create opportunities for multinationals or companies looking to invest in Argentina. The Law amends the Argentine income tax law (for both corporations and individuals) and introduces a revaluation regime meant to address the distortions caused by the high inflation experienced in Argentina over the last decade.

The tax reform changes impact:

  • Corporate income tax rates
  • Dividend withholding tax
  • Taxation of certain financial investments
  • Indirect capital gains taxation
  • Thin capitalization rules
  • The definition of a permanent establishment
  • Transfer pricing
  • Fiscal transparency rules
  • Value-added tax (VAT) on digital services
  • Refund of VAT credit balances
  • Revaluation of assets
  • Social security contributions

Multinational entities conducting business activities, investing, or planning to invest in Argentina need to be aware of the impact of these changes. We encourage you to review the complete overview of the reform including valuation impacts and the introduction of RARTP, which resulted in new tax value of assets determined by a “revaluation factor.”

IFRS Application

A dedicated section on the IFRS website exists for the IFRS standards’ limited application in Argentina.

Government Related Companies, Organizations, or Legal Conflicts

Created in 1944, the Tribunal de Tasaciones de la Nación (Court of Appraisals of the Nation) is a technical organization and part of the Argentine Government; its role is defined by Law No. 21.626. As stated on its website:

“The National Appraisal Tribunal is a permanent technical body directed by professionals proposed by both the State and private professional entities, whose primary mission is to establish the objective values of the assets whose acquisition, disposal, lease or book value, be required by the Judicial Power of the Nation and by national, binational or multinational organizations of which the National State is a party, as well as by provincial or municipal States, for themselves or for those entities to which they supervise, control or audit. Likewise, it carries out the appraisals that are required by any natural or legal person.”

Financial Markets

The Central Government, the provinces, and municipalities create bonds to finance projects or to cover the budget deficit. They are in local currency (with fixed or variable interest) or in foreign currency (normally U.S. dollars).

Firms create company bonds (called “Obligaciones Negociables”) that allow them to obtain additional financing.

Argentina does not have a relevant derivative market, local hedge funds, or pension funds. Future markets are small and related to agricultural commodities and the dollar.

In this environment, VRG and R. Biasca & Asociados have worked since 1996, mostly with private companies in the valuation of physical assets, intangibles, and comprehensive valuations of private companies. To learn more about how VRG and R. Biasca & Asociados can work with your company, we welcome you to visit us online or contact Rodolfo Biasca at rbiasca@vrg-ar.com.

For more information about VRG’s full scope of international valuation and value-related services, contact Bill Hughes.

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