Doing Business in Latin America
IBA Latin American Regional Forum
March 2016
Argentina
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i.Argentina
A.
Foreign Investment
i.
Authorisations vs limitations or prohibitions
A.
Argentine foreign investment regime
In general terms, foreign investments in Argentina are regulated by a framework of international
treaties and Argentine laws that establish, among others, the rules for choice of law and jurisdiction,
legal treatment of foreign investors, monetary policy and foreign exchange.
Particularly, foreign investments are governed by the Argentine Foreign Investments Law No. 21,382
which states, as a general principle, that foreign investors enjoy the same status and have the same
rights that the Argentine Constitution affords to local investors. However, there are certain regulated
areas that impose restrictions on foreign investors, such as antitrust regulations, foreign exchange
matters, the broadcasting industry, or the acquisition of rural land.
B.Free choice of law and jurisdiction
1
Choice of law
Argentine law generally permits parties to a contract to select the laws that will govern their
agreements as long as some connection to the system of law that is chosen exists. Further, the choice
of foreign law will only be valid to the extent that it does not contravene Argentine international
public policy (orden público or public order). Typical public policy laws include criminal, tax, labour
and bankruptcy law, as well as inheritance and family rules.
Rights associated with real estate (such as in rem rights), the ability to acquire real estate and the
formal requirements with regard to legal acts connected with real estate are all governed exclusively
by local laws. The same principles apply with respect to movable property permanently located in
Argentina.
2
Choice of jurisdiction
Argentine courts have jurisdiction whenever: (1) the defendant is domiciled in Argentina; (2) the
place for performance of any of the obligations is located in Argentina; or (3) Argentine courts
have been chosen as the applicable forum (subject to certain restrictions). With respect to debtors
domiciled abroad, local courts have jurisdiction only to the extent that the debtor has assets in
Argentina, in which case insolvency proceedings will only cover such assets.
Argentine courts acknowledge that parties to a contract may choose a jurisdiction other than
Argentina for the settlement of any disputes arising under a contract provided that there is a
connection with such jurisdiction and the dispute relates to pecuniary rights.
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C.Foreign exchange matters
1
Foreign exchange controls
As a general rule, all transfers of foreign currency to and from Argentina must be made through the
Argentine Foreign Exchange Market (the ‘FX Market’) and are subject to numerous restrictions and
requirements set forth in the applicable foreign exchange regulations, as periodically issued by the
Argentine Central Bank (the ‘Central Bank’). All transfers should be made in an Argentine licensed
financial entity or foreign exchange agency, and are registered through foreign currency exchange
forms executed with the financial entity or exchange agency that participates in the transaction.
The Central Bank has established a list of concepts (códigos de concepto in Spanish) under which
authorised transfers can be made. If a transfer of foreign currency to or from Argentina does not fall
under a specific concept, a special request must be filed with the Central Bank.
Apart from the restrictions set forth by the Central Bank, other governmental agencies – like the
Argentine Tax Authority (AFIP for its Spanish acronym) and the Customs Agency (Dirección General
de Aduanas in Spanish) – have also implemented a series of measures aimed at protecting the flow
of foreign currency out of the country, which derives mostly from the payment of profits and services
abroad and from the purchase of goods. Nonetheless, irrespective of whether local companies would
comply with all the legal requirements for purposes of executing the foreign exchange transaction to
make payments to non-Argentine residents, it cannot be ruled out that de facto or informal measures
may limit or delay the ability of Argentine residents to acquire foreign currency in the FX Market.
2
Foreign financing of Argentine residents
According to current foreign exchange regulations, any cross border loan of Argentine residents
granted by non-Argentine residents would be subject to the following rules:
(1) The foreign currency proceeds disbursed must be transferred to Argentina and sold for
Argentine Pesos in the FX Market within 30 days following the date of disbursement (the
‘Mandatory Repatriation’);
(2) Principal repayments thereunder are subject to a 365-day waiting period (the ‘Mandatory
Waiting Period’), during which principal cannot be paid unless the transaction qualifies for
an exemption (but accrued interest can, upon fulfilment of certain formal requisites). The
Mandatory Waiting Period is applicable regardless of the method of payment that is used (ie,
with or without access to the FX Market);
(3) Funds transferred and sold in the FX Market will be subject to the constitution of a mandatory
nominative deposit in US dollars for one year equal to 30 per cent of the transaction, unless an
exception applies to the cross border loan (the ‘Mandatory Deposit’); and
(4) Loans must be reported to the Central Bank pursuant to the foreign debt information regime.
3
Foreign investments in Argentina
In general, foreign investments can be classified as ‘portfolio’ or ‘direct’ investments. Direct
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investments are participations in a local company of at least 10 per cent of its ordinary shares or
voting rights.
Portfolio investments include, among others, participations in local companies below that cap, as well
as holdings of Argentine currency, deposits in local banks, and debt securities of Argentine issuers.
Generally, funds transferred to Argentina by non-Argentine residents for portfolio investments are
subject to the Mandatory Deposit and the Mandatory Waiting Period. Repatriation of such portfolio
investments is limited to an aggregate amount of US$500,000 per calendar month; in addition,
certain specific requirements are to be met (which must be validated by the local bank participating
in the transaction), such as the Mandatory Repatriation.
Funds transferred to Argentina by non-Argentine residents for direct investments and the purchase of
real estate located in Argentina are subject to the Mandatory Waiting Period, but are exempted from
the Mandatory Deposit, provided that certain conditions are met. Non-Argentine residents qualifying
as direct investors in an Argentine company may repatriate their direct investments by reducing
or selling their Argentine investment, provided that the direct investment has been maintained in
Argentina for at least 365 calendar-days, and that other specific requirements are met (to be validated
by the local bank participating in the transaction). Furthermore, for any direct investment made on
or after 28 October 2011, the direct investor must provide evidence that the funds originally paid for
such investment were transferred to Argentina and sold in the FX Market for Argentine Pesos (ie, the
Mandatory Repatriation).
4
Foreign trade
Argentine residents are required to bring to Argentina and sell for Argentine Pesos in the FX Market
the foreign currency proceeds collected abroad from their export of goods and services by the
applicable regulatory deadlines, which in the case of the goods, varies according to the nature of the
type of exported good.
The Central Bank has delegated to local financial institutions the responsibility to oversee and followup the compliance with the obligation to transfer and sell for Argentine Pesos in the FX Market the
foreign currency proceeds collected from the export of goods. Exporters must appoint a financial
entity for purposes of carrying out the follow-up of the export and the transfer and sale of the foreign
currency export proceeds corresponding to the relevant bills of lading. Foreign exchange regulations
require financial institutions to inform any breach of the obligation of the exporter once the
applicable term expires. On the contrary, foreign exchange regulations do not establish such a followup regime in the case of exports of services.
ii.
Treatment of Foreign Investment in Infrastructure Initiatives and PPP Projects
The Federal Government and some provincial governments as well, have enacted regulations to foster
private initiative in public interest-related projects.
Some of these jurisdictions have passed regulations that allow private investors to propose public
works or projects to governmental authorities in order to satisfy public needs. Should such proposals
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be declared of public interest, the private investor – who initially filed the proposal – receives
advantages in the subsequent competitive bidding process.
Legal frameworks for the participation of private investors in the design, construction, operation,
maintenance and financing of infrastructure works are in place both at federal level and in some
provinces. Both project finance and turn-key schemes are also being contemplated. There is room too
for partnership with governmental entities through the creation of corporations with mixed equity
participation.
From an environmental law standpoint, as a rule, major infrastructure projects must be approved by
the corresponding regulatory agencies (federal or provincial, as the case may be) for which purpose
an environmental impact assessment has to be approved and a public hearing must be held. In
practice, in Argentina, most of the important infrastructure projects have been developed by means
of a concession of public works agreement.
At a Federal level, the regime for private public partnership (PPPs) was implemented by means of
Decree No. 967/2005 (the ‘Decree 967/05’), which stated that PPPs are vehicles through which
private investors and the Federal Government may associate in order to provide public services, carry
out public works or perform other governmental duties. PPPs may be incorporated as corporations
or trusts and shall be publicly listed. Decree 967/05 also establishes certain guidelines to be used for
association between public and private parties. For instance, the Federal Government may make its
contribution to the PPPs through, among other things, cash, tax credit assignments, tax benefits and
the granting of rights over public or government rights (with the exception of property rights).
iii.
Treatment of Foreign Investment in Oil and Gas and Mining Activities
A.Oil and Gas
1
Domestic policy on oil and gas
A decade of state intervention, subsidies and price control discouraged hydrocarbon exploration and
boosted the consumption of fuels and natural gas fostered by economic growth. This combination
led to a loss of hydrocarbon self-sufficiency and forced Argentina to import natural gas and liquefied
petroleum gas (LPG) to meet domestic demand. Liquid fuels (that is, fuel oils) are also imported.
The current policy of the Federal Government is aimed at regaining self-sufficiency in hydrocarbons
supply.
Law No. 26,741 of May 2012 declared the country’s hydrocarbon self-sufficiency, as well as
hydrocarbon exploration, production, industrialisation, transport and marketing, to be in the
public interest as it furthers economic development and social equity, fosters employment, increases
competition between the different economic sectors and promotes the equitable and sustainable
growth of the provinces and regions. To achieve this goal, proposed means include: the increase
and maximisation of investments and resources; the integration of public and private capital, both
domestic and international; and the promotion of industrialised hydrocarbons with high added value.
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2
The regulatory regime
According to the Argentine Constitution, natural resources, including hydrocarbon reserves,
belong to the provinces in whose territories they are located and are severable from the general
ownership of property. However, ownership does not entitle the provinces to legislate on hydrocarbon
matters because the Argentine Constitution empowers the federal Congress to issue legislation on
hydrocarbons matters.
Pursuant to the legislation passed by the federal Congress, the national policy on hydrocarbon
exploration, production and marketing is dictated by the National Executive Branch. Meanwhile,
the granting, administration and control of exploration permits and concessions is entrusted to the
provinces.
On the other hand, offshore upstream activities beyond 12 marine miles are subject to exclusive
federal legislation and jurisdiction.
Law No. 17,319 of 1967, as amended, (the ‘Hydrocarbons Law’) is the main piece of legislation
governing exploration and production activities at federal level. The Hydrocarbons Law regulates the
granting of exploration permits and production concessions, and their terms and conditions. This
federal law applies to concessions that were granted by the Federal Government and are currently
subject to provincial administration.
Effective as of November 2014, Law No. 27,007 amended the Hydrocarbons Law.
Law No. 27,007, besides amending some aspects of the Hydrocarbons Law, mostly linked to the
exploration and production of unconventional hydrocarbons, the extension of the concessions and
the royalties rates, also modified the promotional scheme for the industry established in 2013, among
other key issues for the sector.
Some significant amendments to the Hydrocarbons Law approved by Law No. 27,007 were as follows:
(1)Concessions for unconventional production: Law No. 27,007 conferred legal status to
production concessions for unconventional hydrocarbons (CENC). For this purpose,
‘Unconventional Hydrocarbon Production’ is defined as the extraction of oil and gas
through unconventional stimulation techniques applied to deposits in geological formations
characterised by the presence of rocks with low permeability: shale or slate rocks – shale oil
and shale gas-, compact sandstones – tight sands, tight oil and tight gas-, and layers of coal –
coal bed methane.
CENCs may be requested by the holders of exploration permits or conventional production
concessions, which are currently in force or which may be granted in the future. The duration
provided for the CENCs is of 35 years with the possibility of subsequent extensions for 10-year
periods.
(2)Duration of exploration permits: The basic term of permits for conventional exploration is
divided into two periods of up to three years each plus a discretionary extension up to five
years. Thus, the maximum possible duration of exploration permits is reduced from 14 to 11
years. For unconventional exploration, the basic term of the permit is divided into two four-
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year terms, plus one discretionary extension of up to 5 years; this is a maximum of 13 years.
In the case of offshore permits, the two periods of the basic term are of up to 4 years and the
extension for five year is foreseen.
(3)Duration of production concessions: The term of conventional production concessions was
maintained in 25 years. For CENCs, a 35-year term is provided, including an initial pilot plan
of up to five years. For offshore production, concessions will be granted for a period of 30
years. In all cases ten-year extensions are foreseen.
(4)Duration of transport concessions: According to Law 27,007, transport concessions will be
granted for the same term as the production concession from which they originate, plus the
possibility of an extension for a ten-year term. Thus, transport concessions arising from a
conventional production will be granted for a 25-year term and those originating in a CENC
for a 35-year term. Until present all transportation concessions were granted for 35 years.
3
Regulatory bodies
Jurisdiction over hydrocarbons located on shore and offshore up to the 12 marine miles from the
shore is shared between the federal State and the provinces.
In 2007, administration over all oil and gas fields located in the territories of the provinces, including
the territorial sea up to 12 marine miles from the shore, was transferred by the federal State to the
provinces where the fields are located (Law No. 26,197). Hydrocarbon reserves in the Argentine
continental shelf and beyond the 12 miles remain the property of the federal State and are subject to
exclusive federal jurisdiction.
The federal regulator for the oil industry is the Secretariat of Energy of the Ministry of Federal
Planning, Public Services and Infrastructure (the ‘Secretariat of Energy’) which is also the
enforcement agency for the Hydrocarbons Law.
Although natural gas transportation and distribution are under exclusive federal jurisdiction,
these activities are subject to a separate regulatory framework (Law No. 24,076, as amended and
implemented) (the ‘Gas Law’) and the regulator for these matters is the national gas regulator Ente
Nacional Regulador del Gas (ENARGAS for its Spanish acronym).
Crude oil transportation, hydrocarbon downstream activities (refining) and the LPG industry are also
subject to exclusive federal jurisdiction.
In each oil-producing province (that is, Salta, Jujuy, Formosa, Mendoza, La Pampa, Neuquén, Río
Negro, Chubut, Santa Cruz and Tierra del Fuego) there is an agency with specific regulatory powers
over hydrocarbon upstream operations.
4
Oil and gas rights
The Hydrocarbons Law provides for the grant by the owner (the federal State or the provinces, as
the case may be) of the mineral rights, surface survey permits, exploration permits and production
concessions to private investors. Permits and concessions were granted by the federal State until 2007
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when jurisdiction over the hydrocarbon reserves was transferred to the provinces. However, most of
the hydrocarbons currently produced come from concessions granted by the federal State.
Under the Hydrocarbons Law, the holder of an exploration permit has the exclusive right to perform
the operations necessary or appropriate for the exploration of hydrocarbons within the area covered
by the permit. Usually, exploration permits set minimum commitments consisting of seismic survey
and wells. If the holder of an exploration permit discovers commercially exploitable quantities of
crude oil or natural gas, it may apply for, and is entitled to acquire, an exclusive concession for the
production and development of these reserves.
5
Transportation by pipeline
Hydrocarbon pipelines that run across the territories of two or more provinces or into another
country are subject to exclusive federal jurisdiction. Pipelines confined to the territory of one
province only are subject to that jurisdiction. Most of the pipelines in the country, including the high
pressure natural gas pipeline system connecting most of the provinces, are subject to federal exclusive
jurisdiction.
In both cases, hydrocarbon pipeline transportation is a public service and is subject to open access
and regulated tariffs.
At the federal level, natural gas pipelines can be built and operated under licences, concessions or
permits granted through public bidding by the National Executive Branch under the Gas Law. Gas
pipelines operated under this framework are regulated by ENARGAS.
Alternatively, crude oil and natural gas pipelines can be built and operated under concessions
granted under the Hydrocarbons Law to holders of production concessions to deliver their own
product. Pipelines operated under this framework are regulated by the Secretariat of Energy or the
provincial hydrocarbon authorities, depending on their location.
B.Mining Activities
The basic statute which governs mining in Argentina is the Mining Code. Argentine law is based upon
the principle that all mineral deposits are state-owned. Each province or the federal government is
considered as the owner of the minerals located within their jurisdictions. However, individuals and
legal entities may obtain concessions from such bodies to explore and develop those deposits and
may freely dispose of the minerals extracted within the area of the concession.
1
Exploration of mineral resources
Prior to the commencement of exploration works, the mining company must obtain an exploration
permit from the provincial mining authority (whether the land to be explored is public or private
property). The exploration permit grants the explorer the exclusive privilege to explore and,
eventually obtain a development concession to work any deposit of any mineral (this right is not
limited to those mentioned in the petition) discovered within the area of the grant.
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2
Development of mineral resources
If a discovery is made during the course of exploration, the discoverer must register the discovery
with the provincial mining authority. This territory may not be explored nor developed by third
parties until the end of the staking proceedings. The next step is to define the final limits within
which the concession may be developed. The discoverer must file a petition for a development
concession with the mining authority.
3
Mining concessions
c.1.Acquisition: Mines are acquired through a legal concession. Mines capable of being acquired
through a concession (original acquisition) are: (1) discoveries; and (2) null and vacant
mines.
c.2.Effects: A mining concession makes the concessionaire owner of every deposit found within its
boundaries. However, the discoverer must inform the Mining Authority of the existence of any
mineral different from the one registered. This information is relevant to decide the mining
fee and the capital investment required.
c.3.Withdrawal: Mining concessions can be withdrawn by the concessionaire through a direct and
spontaneous act demonstrating before the Mining Authority the decision not to pursue with
the mining works. A written declaration must be also filed with the Mining Authority.
c.4.Mining fee: Mines are awarded through the payment of an annual fee established by the
Argentine Congress and paid to the Federal Government or the Provincial Governments,
according to the location of the mines.
c.5.Investment plan: After the mine is granted, the concessionaire must submit an estimate of the
plan and amount of the capital investment to be made to the Mining Authority. Investments
must be destined to: (1) the execution of mining labour works; (2) the building of camps,
roads and other constructions for exploration purposes; and (3) the acquisition of machinery,
facilities and exploitation equipment concerning the production capacity to be introduced
permanently into the mine.
c.6.Termination of the mining concession: Mining concessions can expire for the following
reasons: (1) lack of payment of the annual fee; (2) lack of filing of the estimation of the plan
and magnitude of the capital investment; (3) investments made contrarily to the requirements
of the Mining Code; (4) investments lower than three hundred (300) times the annual fee;
(5) lack of filing of the annual affidavit on the development of the investment plan; (6) fraud
of the annual affidavit on the development of the investment plan; (7) lack of compliance
with the estimated investments; (8) modification and reduction of the estimated investment
without prior notice; (9) withdrawal of assets included in the investment resulting in its
reduction; and (10) inactivity of the mine for over four years.
c.7.Specific tax treatment: Mining activities have special tax incentives, which should be carefully
analysed in the decision-making process for a new investment in the area. Legal statutes on
tax incentives provide for: (1) the financing or reimbursement of Value Added Tax payments
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made by mining companies; (2) a 30-year tax stability regarding taxes in force at the time
the feasibility report is submitted; (3) the beneficiaries’ right to deduct from their income
tax statement 100 per cent of the amounts invested in prospecting, special research, mineral
and metallurgical tests, pilot plants, applied research and other works aimed at determining
the technical and economic feasibility of a project; (4) the possibility of accelerating (over
three years) the depreciation of investments made on housing, transportation, construction
of plants and equipment required for mining activities; (5) the exemption from paying
income taxes derived from profits of the mines and mining rights, used as payment for
the subscription of shares of registered beneficiary companies; (6) a three per cent cap on
royalties, calculated on the ‘pit-hole’ value (similar to NSR royalties) of the mineral extracted;
among others.
iv.
Treatment of Foreign Investment in Real Estate
A.Restrictions
Foreign ownership of real estate is unrestricted except for limitations on: (1) ownership or possession
of rural lands; and (2) acquisition of properties located within national security zones.
1
The rural lands regime
The Rural Land Law No. 26,737 and its implementing Decree No. 274/2012 (the ‘RLL’) impose
limits on the ownership or possession of rural lands by foreign persons or legal entities.
a.1. Scope: The RLL’s purpose is to regulate, with regards to individuals and legal entities, the limits
to ownership and possessions of rural lands which are defined as any piece of land outside the
urban grid, regardless its location or destiny. Foreign ownership over property or possession of
rural lands is deemed as any acquisition, transfer, assignment of possessory rights, whatever the
type, name and extension of time imposed on the parties, in favour of the subjects reached by
the RLL’s scope.
a.2. Restrictions: The RLL sets forth the following limits to individuals, legal entities or contractual
forms of association:
(1)Foreign ownership of rural land shall not exceed 15 per cent of the total amount of ‘rural
lands’ in the whole Argentine territory or in the territory of the relevant province or
municipality where the relevant lands are located;
(2)Individuals or corporations of the same nationality will not be able to own or possess rural
lands that represent more than 30 per cent of the 15 per cent previously mentioned;
(3)Ownership or possession by the same foreign owner shall not exceed one thousand (1,000)
hectares in the ‘core area’ or the ‘equivalent surface’ determined according to the location
of the lands that is to be defined by the Interministerial Council of Rural Lands (‘Consejo
Interministerial de Tierras Rurales’ in Spanish);
(4)Foreign legal entities or individuals shall not be owners of rural lands that comprise or are
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located beside ‘permanent and significant bodies of water’; and
(5)Foreign legal entities or individuals shall not be owners of lands located in Security Zones,
other than in accordance to the exceptions and the procedures established in the Security
Zones’ regulations.
a.3.
Subjects reached by the RLL: They are:
(1)Foreign individuals, except those who: (1) have a ten-year residence; (2) have Argentine
children and have a five-year residency; and (3) have been married to Argentine citizens for
at least five years prior to the transfer of the property and have a five-year residency in the
country.
(2)Legal entities in which more than 51 per cent of the stock or a portion sufficient to prevail in
corporate decisions is held by foreign individuals or legal entities held by foreign individuals
or legal entities. Other forms of ‘control’ or legal vehicles are also subject to the limitations of
the RLL.
a.4. Consequences of non-compliance: The RLL sets forth that all legal acts that are executed in
breach of its provisions shall be null and void, and the authors and participants shall not have
any right to claim a compensation for their illicit act. The pretended appearance of Argentine
individuals as owners to comply with the ownership required by law, in order to breach the
provisions of the RLL, is prohibited. Such circumstance shall be considered an illicit and
fraudulent simulation.
2
Security zones
The national security zones (the ‘Security Zones’) are areas surrounding international borders and
certain military and civil facilities in the interior of Argentina. The width of the Security Zones varies
from case to case. The National Executive Branch can amend the width of the Security Zones taking
into account the situation, population, resources and national defence interests. In no case, may a
Security Zone exceed 150 kilometres from an international border.
The Security Zones’ regime states that it is in the national interest that properties located within
Security Zones belong to native Argentine citizens. For this reason, any and all sales, transfers or
leases of properties located within the Security Zones are subject to the prior approval of the Security
Zones Commission (SZC). Likewise, the SZC’s prior approval is required for: (1) mergers and
transfers of the controlling stocks in companies that own a property located in a Security Zone; and
(2) the conversion, merger or spin-off of a corporation that owns properties in a Security Zone. Only
Argentine individuals are exempted from the Security Zones’ regulations.
B.
Zoning and related matters concerning the use and occupation or real estate property
Real estate’s developments in Argentina are basically governed by provincial and municipal zoning
regulations and building codes; therefore, they differ in each jurisdiction. The Federal Government
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sets the minimum environmental standards for the protection of the environment, and the provinces
and municipalities establish specific standards and implementing regulations.
Control of proper zoning, land use, building codes and other restrictions is carried out by provincial
and municipal authorities. Environmental compliance is controlled at the federal, provincial and
municipal level.
v.
Treatment of Foreign Investment in the Rendering of Public Services
A.Introduction
Argentina is organised as a federal system. The Federal Government coexists with 24 local
governments (23 provinces and the City of Buenos Aires) and more than 2,000 municipalities.
Administrative law is of ‘local’ nature. The Federal Government, each province, the City of
Buenos Aires and the municipal governments may enact or issue their own laws or regulations on
administrative matters. Such laws and regulations must comply with the Argentine Constitution,
as well as with the Constitution of the relevant province or of the City of Buenos Aires. Public
procurement is considered a typical administrative matter; therefore, it is governed by administrative
law. Thus, contracts executed by administrative agencies are governed mostly by administrative
law rather than by civil or commercial law. Each province may enact its own laws and regulations
regarding public procurement.
B.Procurement regulations
Procurement laws and regulations are generally applicable to most of the contracts entered into by
the government including, inter alia: (1) public works contracts; (2) public service concessions or
licences (ie, utilities); (3) supply agreements; and (4) consulting services agreements, etc. Generally,
government contracts are governed by the rules set forth in the relevant legislation, as supplemented
by the specific bidding terms and conditions issued ad-hoc when the bidding and tender process is
called; and the particular terms of the contract.
The general principle is the need that procurement must be done by means of a competitive bidding
process that must ensure equality between all bidders. The bidding terms and conditions usually
impose certain economic and technical requirements (eg, expertise in similar works, a minimum net
worth, certain debt ratios, etc) for the granting of public contracts.
C.Public works and utility concessions
Depending on their location and scope, public works and utilities’ contracts may be subject to
federal, provincial or municipal regulations. Thus, the authorisations required to carry out public
works or to operate a utility may vary from one jurisdiction to another. Currently, major contracts
for the construction and/or the operation of large nuclear and hydropower generation projects are
being carried out. There are also important gas and electricity transportation projects, as well as a
number of thermal generation power initiatives being considered for future tenders.
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B.
Offshore vehicle providers in Latin American countries
i.Introduction
From a legal perspective, Argentina follows a continental or civil law tradition, and it is organised
as a federal republic. Consequently, in accordance with the Argentine National Constitution, each
of the 23 provinces and the City of Buenos Aires issue their own norms,1 delegating certain powers
to the federal government.2 Hence, within its attributions, the National Congress is vested with the
power to enact the civil and commercial codes,3 which include those matters related to companies
with profit-making purposes.4 Particularly in the field of corporate law, the General Company Law (in
Spanish, ‘Ley General de Sociedades 19,550’, hereinafter referred to as ‘GCL’)5 is the ‘federal’ legal
instrument (ie, applicable throughout Argentina) that comprehensively regulates all matters relating
to the different types of companies, including those issues concerning the recognition of companies
organised abroad as well as the activities they perform in Argentina.6
On the other hand, due to the federal organisation, each province retains the power to regulate on
local control and registration of companies that aim to perform main activities within their respective
territories. Indeed, registration procedures may vary from one jurisdiction to another. The most
representative case is the regime applying within the City of Buenos Aires due to the fact that this
is the Capital City and the principal port of the country, thus being the paramount destination of
foreign investors for trade and businesses. Because of the limitations of the purpose hereof, this
report does not intend to cover all aspect regarding offshore companies, but rather to present a short
practical guide about the most typical topics to be considered when doing business within or along
with Argentina –referring particularly to the local regulations adopted in the City of Buenos Aires.
ii.
Offshore Companies Under the GCL
a.Recognition of Companies Organised Abroad
Firstly, it must be stressed that the GCL upholds the constitutional principle of equality under the law;
consequently, companies formed in Argentina and those organised abroad must be treated in parity.7
Nevertheless, in harmony with the constitutional principle of sovereignty, the law requires companies
organised abroad aiming at doing businesses within the country to be registered and to accomplish
certain formalities before the registry of commerce organised in the chosen jurisdiction.
Secondly, the general principle regarding recognition of the existence of companies organised
1
In 1994, after a constitutional reform, the City of Buenos Aires was recognised governmental and legal autonomy similar to the ones
empowered to the provinces.
2
Argentine National Constitution, Articles 5, 121 and 126.
3
National Constitution, Article 75.12.
4
Following an integral and broad legal reform, Law 26,994 derogates the National Civil Code and the National Commercial Code, adopting the
unified National Civil and Commercial Code effective as of 1 August 2015.
5
Law 26,994 – effective as of 1 August 2015 – eliminates the division between civil and commercial companies. Now, the GCL solely refers to
companies with lucrative purposes regardless of the activities included in the purpose of the company.
6
Additionally, listed companies are subject both to the GCL and to the provisions of Law 26,831 and related norms governing the Argentine
capital market.
7
Law 19,550, Explanatory Statements of the Law, Chapter I, Section XV.
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abroad is provided by Article 118, first part, of GCL, which upholds the locus regit actum canon and
thus provides that ‘the existence and form of a company set up abroad shall be governed by the laws
of the place where it was organised.’ b.Different Forms for Companies Organised Abroad to Perform Activities in Argentina
The GCL regulates three legal ways for companies organised abroad to perform activities in
Argentina. Hence, a foreign company can: (1) carry out isolated acts; (2) establish a permanent
representation (ie, branch, agency, etc); or (3) organise or participate as members of local companies
(ie, subsidiaries). Different requisites apply in each case, as follows.
In the first place, companies organised abroad are qualified to perform isolated acts and to be on
trial without need of prior registration or any further formalities.8
In the second place, companies organised abroad may regularly perform activities consistent with
their main business by setting up a branch, agency or any other type of permanent representation in
Argentina. For this purpose, the foreign company must fulfil certain prerequisites, among them, the
company must: (1) prove its existence pursuant to the laws of the country of origin; (2) fix a domicile
within Argentina; (3) comply with certain publications and registrations similar to the ones required
by the GCL to local companies; (4) justify the decision to create such representation; and lastly (5)
appoint the person who shall be in charge thereof. 9
Finally, companies organised abroad may opt to form or participate in local companies. For this
purpose, the company must fulfil the following requirements first: (1) it must produce evidence that
it has been incorporated in accordance with the laws of its country of origin; (2) it must register it bylaws and other qualifying documents; and (3) it must appoint its legal representatives in Argentina.10
Furthermore, it is worth mentioning that the GCL upholds the phenomena of companies formed in
fraudem legis. In this regard, when a company organised abroad has its principal place of business
or its main purpose is to be accomplished in Argentina, then it shall be linked to a local company
insofar as its incorporation, charter amendments and supervision are concerned. Thus, the company
will only be recognised as a regular entity once it fulfils all the relevant requirements to set up a local
company under the GCL.11
Regarding listed companies, capital market regulations apply correspondingly the principle of
equality before the law. However, all companies applying for a permit to make public offers have to
demonstrate that they have no restriction or legal prohibition to perform activities according to their
by-laws within the country of organisation or registration. Hence, offshore companies are excluded
from participating in public offers.12
8
GCL, Article 118.
9
GCL, Article 118. Also, according to Article 119, GCL, when the company is organised under a form not provided for by the GCL, the register
shall stipulate the formalities to be fulfiled, subject to the strictest application of the provisions of the GCL
10
GCL, Article 123. Although the GCL literally refers to the formation of local companies, the doctrine and the jurisprudence have unanimously
agreed that it also allows foreign companies to acquire a participation in companies already organised and existing in Argentina.
11
GCL, Article 124.
12
National Exchange Commsission, General Resolution 604/2012, Article 2.
18
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MARCH 2016
iii.
Regulatory Norms Regarding Offshore Companies in the city of Buenos Aires
Since the last 12 years, offshore companies have been subject to regulatory norms adopted by local
registers in certain jurisdictions. Hence, in 2003, the Public Registry of Corporations in the City of
Buenos Aires (PRC) initiated an integral regulatory reform leading a tendency that seriously restricts
the activities of offshore companies. Basically, PRC’s regulations are aimed at enhancing the level of
transparency, supervision and protection of stockholders and creditors through increased preventing
measures (ex ante legal strategies). This reform also obeyed to the international legal trend promoted
by, among other international organisations, the Financial Action Task Force (ie, FATF or GAFI by its
acronym in Spanish) through the recommendations to fight again terrorism and money laundering.
Ultimately, the tragedy occurred in Argentina in 2004 (locally known as the ‘Cromagnon Case’) was
the straw that broke the camel’s back.13 The case evidenced the need of reinforcing controls over
companies organised abroad, particularly referring to offshore or tax haven jurisdictions, mainly
because of the archetypal difficulty to know who are the accountable individuals behind the corporate
veil.
As a result, the set of norms adopted by the PRC – then collected in General Resolution 7/05 –
includes measures aimed at preventing offshore vehicles’ activities in Argentina. The following
statements upheld by the PRC when referring to offshore companies are very useful to help
understand the PRC criterion: ‘[...] offshore companies are useless for a real investment economy
orientated to the production of goods and services and the creation of employment sources, and
at this point nobody can deny the truth in the generalised awareness that offshore companies
are instruments of fraud, concealment or hiding of assets, the violation of public policy rules, the
legitimizing of assets derived from unlawful acts or activities including very serious organised criminal
activities (sex trafficking in women, child prostitution, trafficking of drugs and weapons, terrorism,
and the like), among others [...].’14
A.Offshore Vehicle Providers General Concept
According to General Resolution 7/05, offshore companies are those companies organised abroad
which pursuant to the laws of the jurisdiction of organisation, incorporation or registration thereof
are imposed with prohibitions or restrictions regarding to all business or main business transacted
thereby within the area of application of such laws. Likewise, General Resolution 7/05 defines
offshore jurisdictions as those jurisdictions – in the broad sense of the term, including independent
or associated States, territories, domains, islands or any other territorial units or areas, whether
independent or not – in which, pursuant to the applicable laws, prohibitions or restrictions are
imposed upon all or a given type of companies organised, incorporated or registered therein with
regard to all business or main business transacted thereby within the area of application of such laws.
Additionally, General Resolution 7/05 also refers to companies which without being offshore are
companies organised in States, domains, territories, jurisdictions, associated States and specific tax
13
The Cromagnon Case resulted in almost 200 fatal victims and at least 1,400 injured people in a tragedy event occurred in the nightclub known
as ‘Cromagnon Republic’ in December 2004. The PCR carried out an investigation in order to discover the actual owners of the companies
–mostly offshore entities– running the business. For further explanations see PRC Resolution 431/05 in re: ‘Nueva Zarelux S.A. y National
Uranums Corporation.’
14
PRC, General Resolution 2/05.
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MARCH 2016 19
regimes other than those considered jurisdictions that cooperate with Argentina for the purpose of
fiscal transparency;15 or they are organised in jurisdictions that do not cooperate in the fight against
money laundering and transnational crime.16 They are the so-called de facto offshore companies and
they are also subject to specific regulations under General Resolution 7/05.17
B.Registration of Offshore Companies with the PRC
As mentioned above, one of the goals sought by the General Resolution 7/05 is to restrict and control
the use of offshore companies organised abroad. Hence, a company organised abroad that requests
to be registered with the PRC, whether for setting up a branch, agency or to participate in a local
subsidiary, must comply with three additional and essential requirements, this is, supplementing
those general requirements described above under the GCL. In this respect, the company is obliged
to provide the PRC with documentation, signed by a corporate officer, whose representation
powers shall be attested to by a notary public, evidencing that: (1) the company is not subject to
any prohibition or restriction to carry out all its business activities or its main activities at its place of
organisation, incorporation or registration; (2) the company has, outside Argentina, one or more
agencies, branches or representative offices in good standing and/or non-current fixed assets or
rights to operate third-party property qualifying as non-current fixed assets and/or interests in other
non-listed companies and/or customarily engages in investment transactions on stock exchanges or
securities markets as provided for in its corporate purpose; and (3) the company must also identify its
partners at the time of adopting the decision to apply for registration.18
Consequently, the general principle is that the PRC shall not register offshore companies originating
from offshore jurisdictions. Offshore companies intending to perform activities for the attainment of
their purpose and/or organise or hold an ownership interest in local companies, shall first comply in
full with Argentina laws similarly to local companies.19
Also, General Resolution 7/05 provides for specific exceptions to this principle (see point iv below).
Regarding the so-called de facto offshore companies (see definition above), the PRC shall apply a
restrictive criterion upon assessing the fulfilment of the requirements that the company is actually
engaged in significant business at its place of organisation, registration or incorporation and/or in
other countries and the identification of its partners. For such purpose, the PRC may request the
company to provide, among other documents: (1) its most recent approved financial statements;
(2) a description, in a document to be signed by the competent authority of the country of origin
or a company officer – whose capacity and sufficient powers shall have to be duly evidenced – of the
main transactions carried out during the fiscal year to which the financial statements refer or during
the next preceding year if the periodicity of such statements were shorter, stating the transaction
dates, parties, purposes and amounts; (3) documents evidencing title to non current fixed assets or
15
Effective 1 January 2014 Argentina switched from a blacklisting system of low-tax or no-tax jurisdictions to a white-listing system that includes
the jurisdictions that have entered into agreements with Argentina for exchange of information as well as those that have initiated the process
of negotiation and ratification of a double taxation agreement. The white list can be consulted on www.afip.gob.ar (Decree 589/13 and AFIP
Resolution 2576/13).
16
These are jurisdictions characterised as such in accordance with the criteria established by the Financial Information Unit (FIU) of the
Ministry of Justice and Human Rights or by the FATF or other international organisations.
17
PRC, General Resolution 7/05, Chapter VI, Article 248.
18
PRC, General Resolution 7/05, Article 188 et seq.
19
PRC, General Resolution 7/05, Article 193.
20
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contracts conferring rights to operate non current fixed assets, if the document mentioned in (2)
above is deemed insufficient; and (4) background information about its partners’ financial and tax
condition.20
For the sake of clarity, General Resolution 7/05 explains that upon assessing the business carried
out by companies abroad for the purpose of determining whether it should be construed as main
business in comparison with the activities carried out by its office, branch or representation office in
Argentina, the PRC shall avoid focusing its review exclusively on the value of assets and/or volume of
transactions, being entitled to ponder – based on the documentation to be submitted for registration
purposes – other relevant factors such as: (1) the nature of the company’s activities; (2) its integration
in a group of international renown characterised by the division and/or interrelationship of activities;
(3) the extent of human resources involved; and (4) any other element that reasonably evidences the
localisation and significance of the activities carried out abroad by the company.21
C.Maintenance of the Regular Status: Annual Report
Once the company organised abroad has been registered with the PRC, it must comply annually
with a reporting duty, performed within sixty business days as from the closing of its fiscal year.
Basically, the company must provide evidence that it continues to carry out its main activities within
the jurisdiction of organisation, registration or incorporation and/or in third countries. Also, the
company must provide evidence of its ownership structure, if there are variations there in.22
Non-compliance with the reporting duty may constitute an indication that the company organised
abroad is in fact a company in fraudem legis, and thus the PRC may require the company to start a
regularisation procedure to fulfil Argentine laws within a period which shall not exceed one hundred
and eighty days. Otherwise, the PRC shall request in court the cancellation of the registration and the
liquidation of assets, as may be applicable.23
D.Legal Exception: Vehicles or Investment Means
As already indicated, acknowledging the reality of international businesses and the proliferation of
groups of companies worldwide, General Resolution 7/05 provides for an exemption appropriate to
offshore companies when they apply for registration solely for the purpose of acting in Argentina as
a vehicle or investment mean of other companies that directly or indirectly control them. 24 In other
words, a company acting as a mere investment vehicle of another company within the same group is
exempted from submitting (1) that it is not subject to prohibitions or legal restrictions to carry out,
in its jurisdiction of incorporation, all of its activities or the most important of them, and (2) evidence
regarding activities performed abroad. Instead, the controlling company must comply with these two
requirements and the remaining ones described above.25 Furthermore, the vehicle company must
20
PRC, General Resolution 7/05, Article 192.
21
PRC, General Resolution 7/05, Article 211.
22
PRC, General Resolution 7/05, Article 205 et seq.
23
PRC, General Resolution 7/05, Article 244, et seq.
24
For the purpoese thereof, controlling company means a company that holds directly or indirectly sufficient equity interest, irrespective of the
nature thereof, to grant it the votes required to adopt corporate decisions.
25
Exemption of requirements shall also apply in case of joint control, either direct or indirect, in which case such requirements shall have to be
fulfiled by the controlling entities. PRC, General Resolution 7/05, Article 190 et seq.
Doing Business in Latin America
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submit: (1) a certificate issued by the controlling company declaring that the vehicle company is
an investment instrument that it uses solely for that purpose; (2) a certificate issued by the vehicle
company declaring that it is an investment instrument that the controlling company created solely
for that purpose; (3) an organisational chart showing the controlling interest regarding the vehicle
company; and (4) a certificate identifying the vehicle’s shareholders. For the sake of clarity, both the
controlling company and its vehicle (whether offshore or not) must be registered with the PRC and
accordingly they must comply with the annual reporting duty as explained in the previous section.
Finally, upon registration of the vehicle company, the PRC shall report the case to the Federal
Administration of Public Revenue in order for it to rule on the legality of the corporate interposition
from a fiscal point of view.26
iv.
Final Words
The lack of provisions concerning offshore companies at the federal level along with the trend started
in 2003 in order to restrict or limit the activities of this type of companies in specific jurisdictions
within the country, oblige foreign investors intending to do business in Argentina to learn about both
legal requirements provided for by the GCL and local norms in the jurisdiction where the company
intends to perform its main activities. Qualification of ‘main activities’ is always a matter of fact and as
such, it demands a case-by-case analysis.
Ultimately, it is very important to highlight that after the company organised abroad is registered with
a local register in the place where it will perform its main activities, then the company is allowed to do
business throughout Argentina.
C.
Development of ample/integrated capital markets and joint activities between Latin American countries
i.
Merger of Stock Exchanges: Attempts vs Realities
The Lima Stock Exchange (LSE, BVL) and the Colombia Stock Exchange (CSE, BVC) have
executed a Memorandum of Understanding (MOU) in order to merge both stock exchanges.
The aim of the merger is to create a new player prepared to afford the globalised capital markets
challenges, complementing the aims of the MILA (Mercado Integral Latino Americano) markets and
strengthening commercial ties between the two countries.
In connection with this, Francis Stenning, the CEO of the LSE, established: ‘the merger of the LSE
and CSE generates a strategic alignment in the two countries, which strengthens our position in the
capital market in the region and enhances and complements the integration of markets by leveraging
a more rapid growth and solid.’
Also referring to the expectations of the MOU, Mr Juan Pablo Cordoba, President of the CSE, said:
‘the agreement enhances the creation of economic blocks that trascend nations. Therefore, the
merger represents an opportunity for our industry to increase company value through operational
26
22
PRC, General Resolution 7/05, Article 190.
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efficiencies and developing new products for both markets.’
Despite the merger, both stock exchanges will continue to operate in their countries. Thus, it is
important to highlight that the merger will increase the amount of local operations in each stock
exchange.
Finally, the new organisation will only have shares with voting rights. These shares will have the
following characteristics:
A) Entered into the National Registry of Securities and Intermediates;
B) Listed in the CSE and LSE; and
C) Administrated by the Superintendencia Financiera de Colombia and the Public Registry of
Securities Market National Supervisory Commission for Companies and Securities Peru.
A local example of a merger of capital markets is Bolsas y Mercados Argentinos S.A. (ByMA). The
ByMA was formed as a result of the association between MerVal S.A. (Mercados de Valores S.A.)
and BCBA (Bolsa de Comercio de Buenos Aires). The main objective of ByMA is to create a local
capital market that offers more quality and options for its investors. Other objective is to apply new
technologies so that investors can operate with shares and all kinds of financial assets in any part of
the country and all over the world.
Furthermore, there is another case of local integration of the capital markets. That is the case of the
Rosario Stock Exchange, which merged with the Mendoza Stock Exchange with the aim of increasing
the traded volume.
ii.
MILA Market: Current Results and Expectations
The Latin American Integrated Market (LAIM; MILA – Mercado Integral Latinoamericano) is the
result of an agreement signed by the stock exchanges of Bogotá, Santiago and Lima, together with
the CSD’s, Deceval, DCV and Cavali.
The LAIM began to operate on 30 May 2011. The main achievement of this integrated market is to
enable investors to purchase and sell shares and equities from the three stock markets in their local
currency and through the local broker.
The integration of the three stock markets is the result of three measures:
1. The use of technological tools.
2. The adaptation and standardisation of the regulations on trading in capital markets.
3. The custody of securities in the three markets.
Thus, the LAIM is not a merger of markets or a global corporate integration. Each of the three
markets not only complements each other but maintains their independence and regulatory
autonomy.
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Current results:
To show the significance of this market, below we specify the traded volume in the MILA markets in
some months of the years 2013 and 2014. (Source: official page of LAIM).
The total traded volume in the MILA markets reached in November 2013 US$4.70bn, with a negative
variation of 18.09 per cent as compared to the previous month, term in which US$5.73bn was
reached. So far in 2013, the total volume traded in the MILA markets reached US$69.13bn.
The total traded volume in the MILA markets reached in March 2014 was of US$5.23bn, with a
positive variation of 14.60 per cent as compared to the previous month. In 2014 year-to-date, the total
traded volume in the MILA markets reached US$16.02bn.
Expectations:
To continue promoting the participant growth of financial businesses and integrating the stock
markets of the member countries.
To become the most attractive securities market in the region.
iii.
Pacific Alliances: Governmental Action and Proposed Treatment and Agreements
The Pacific Alliances is a regional integration initiative created on 28 April 2011. It is comprised of
four countries: Mexico, Colombia, Peru and Chile.
The main objectives of the alliance are:
1. Free movement of goods and people among the member countries, and
2. Creating a more dynamic flow of trade among the members.
The official page of the Pacific Alliance states that ‘the purpose of the Pacific Alliance is the
integration of member countries in order to move progressively closer to the free movement of
goods, and generate a greater dynamism in the flow of trade between countries.’
In this sense, on 10 February 2014 the presidents of the member states subscribed an agreement that
consisted in the elimination of the 92 per cent of the universal tariff (the remaining 8 per cent will be
eliminated progressively and according to what the parties agree).
There are also some topics that are nowadays being discussed, such as the transparency of
information exchange and the creation of sanitary and phytosanitary standards, best practices, and
procedures and requirements for import and export.
Nevertheless, the more ambitious aim that the governments of the member states proposed is the free
movement of people, goods and services among the member countries. It is a huge challenge but
realistic and possible, taking into account the achievements of the member states in trade matters and
integration.
iv.
IPO’s of Multilatina Companies in Latin American Capital Markets
The Multilatina Companies are gaining power in the world businesses landscapes. The most
24
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important Multilatina companies are in Mexico, Brazil and Chile. It is important to understand that
these companies were local leaders companies that, with management innovations and investments,
have been able to expand all over the region.
Furthermore, few companies merged with other leading companies in the region to achieve this
expansion. This is the case of LANTAM. On August 2010, LAN and TAM, Chilean and Brazilian
respectively, merged in order to create the largest airline in Latin America (LANTAM).
Nevertheless, capitalisation is essential to accomplish such objective. Some examples of IPOs
Multilatina Companies in the Latin American markets show this fact.
Petrobras, one of the largest oil companies in the world, announced on September 2010 the biggest
ever initial public offering (IPO), 1.59bn preferred shares valued at US$65.4bn.
In February 2013, the Mexican Grupo Sanborns – the retail unit of billionaire Carlos Slim’s Grupo
Carso – raised $12.09bn ($950m) through an IPO.
Also, in March 2013, Mexican Terrafina – a unit of Prudential Real Estate Investors – raised $765m in
its IPO.
Finally, Infraestructura Energética Nova raised $600 in the first ever IPO by a Mexican energy
company.
However, the main goal of Multilatina Companies nowadays is to attract investments and to be at the
same level of the traditional Global Companies.
It is worth highlighting the importance of encouraging Multilatina companies in the region,
but always keeping the balance with the foreign and local investments that are not opposite but
complementary.
D.
Rendering of public services
i.
General Framework
During the 1990s, Argentina embarked on a privatisation programme as part of a major economic
reform.
Following the noticeable trend observed in the region, State-owned companies, which had been in
charge of rendering telecommunications services, electricity and gas supply, oil production, water and
sewerage services, airports, railroads, among others, were declared subject to privatisation after more
than five decades of State’s monopoly.
This process was aimed at improving market efficiency and increasing private investment in order to
enhance the quality of public utilities. The State changed its role from supplier to regulator. Foreign
private investment in public utilities was also encouraged.
After Argentina’s 2002 economic crisis, some public utilities returned to the State’s control through
different mechanisms – nationalisations, expropriations, State’s intervention, etc – such as water and
sewerage services (at both national and local level), railroads, the major oil producer, among others.
Doing Business in Latin America
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In addition, public services rendered by private companies were greatly affected by the measures
taken since the Law 25,561 (‘Emergency Law’) was passed. As a result of this major political shift,
Argentina shares nowadays State-owned enterprises and private companies in the public utilities
sectors.
ii.
Governmental Monopoly vs Private Initiative
The Argentine Constitution remains silent as to whether public services should be rendered by
the State or by private companies. According to Article 42 of the Constitution, ‘Legislation shall
establish… regulations for national public utilities’.
This Constitutional provision leaves the decision open to the legislator. Therefore, the Legislative
Branch has discretion to decide which economic activity will be performed by the State or the private
sector and, in the last case, which legal requirements should be complied.
Argentine Constitution also promotes the introduction of competition and market mechanisms
wherever possible. Article 42 of the Argentine Constitution calls the public authorities to defend
‘competition against any kind of market distortions’, which naturally includes economic activities
declared as public services.
iii.
Privatisation General Rules
Argentina lacks a general framework of public utilities. Each industry has its own regulatory
framework which covers its particular features.
The most important public utilities that are still rendered by private companies are: power, natural
gas and telecommunications.
A.Power
The regulatory framework of the power sector (still privatised) has been approved by Law 24,065
in 1992. Its main features are: (1) electricity transportation and distribution are considered ‘public
services’ (ie,: natural monopolies) while generation has been qualified as an ‘activity of general
interest’ carried out within the framework of a competitive market; (2) there are cross ownership
restrictions for private companies between these economic activities; and (3) the creation of (a) the
Wholesale Energy Market Administrator (CAMMESA) whose main functions involve coordinating
dispatch operations, determining wholesale prices and administering the economic transactions,
and (b) an autonomous Government agency (ENRE) which regulates the market and control public
utilities.
And company willing to operate through the wholesale market requires that it be previously
authorised by CAMMESA.
Transportation and distribution services are rendered by concessionaires.
The transportation system was divided into (1) high-voltage energy transportation that links electric power
regions and (2) trunk distribution electric power transportation, which is supplied within each region.
26
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Tariffs charged by electricity transportation companies include: (1) a connection charge; (2) a
transport capacity charge; and (3) a charge that rewards the energy transported. Revenues incoming
from system expansions are regulated separately.
The main features of the distribution concession agreements are: (a) service supply quality standards
are defined and failure to meet those standards would entail penalties on the distributors and
compensation to affected users; (2) a 95-year concession agreement for service supply was granted,
and (3) tariffs were originally fixed on the basis of economic criteria (price caps, following predetermined procedures concerning their calculation and adjustment) until the Emergency Law was
entered into force in 2002.
B.Natural Gas
Production of natural gas is governed by Hydrocarbons Law 17,319. As a result of the enactment
of Law 24,076 in 1992, transportation and distribution segments were vertically divided, and where
applicable, horizontally split.
Transportation and distribution were characterised as a public utility due to its monopolistic nature.
The main features of the licence agreements for the distribution of natural gas are: (1) service supply
quality standards were defined and failure to meet those standards would entail penalties upon the
distributors and compensation to affected users; (2) a 35-year licence agreement for service supply was
granted with the possibility for the licensee to extend this term once for a ten-year period; at the end of
the stated term, the majority stock of the corporation had to be offered for sale again; (3) tariffs were
fixed on the basis of economic criteria, until the Emergency Law was entered into force in 2002.
C.Telecommunications
Telecommunications services were privatised in 1990 and two private companies were granted
exclusivity rights until 1997.
In 2000, Decree No. 764/00 entered into force and provided full deregulation for the
telecommunication industry.
The main features of this sector are: (1) free competition, (2) transparent licensing rules (only
one licence is sufficient to provide any telecommunications service), (2) universal service
regime (which tends to grant access to the services to the population at affordable prices), (3)
national interconnection rules based on a non-discriminatory and transparent criteria, (4) the
telecommunication spectrum is administrated exclusively by the State
iv.
Limitations and/or Prohibitions to Private Parties in the Rendering of Public Services
As a general rule, there are no limitations or prohibitions to private parties for rendering public
services in Argentina.
Unless the service is a legal or natural monopoly (such as natural gas or electricity transportation and
distribution), private companies are allowed, as a general principle, to render public services under
the State’s regulations.
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E.
Real estate – limitations for private parties
i.Introduction
As a general principle, our National Constitution grants the right to private property and states that
expropriation due public use has to meet specific requirements to be admissible.
More specifically, real estate in Argentina is mainly regulated by the Argentine Civil Code. The
Argentine legal system regards ownership under the numerous clausus principle, therefore real estate
rights are only those expressly recognised in the Civil Code or special laws. On 1 August 2015 a new
Civil and Commercial Code shall enter into force that, although it introduces some changes in real
estate regulations, does no change this principle of numerous clausus. There are also other particular
regulations; in this sense real estate is also regulated by other laws such as Condominium Law No.
13,512 (which regulates the subdivision of buildings into independent dwelling or business units) and
Law No. 24,441 (related to housing and construction), which also provides for regulations of trusts.
These regulations will be included in the new Civil and Commercial Code.
Real estate may also be affected by Borders Security Zone regulations and by Law No. 26,737 (Rural
Lands Law) that impose restrictions on the ownership (and holding in the case of Borders Security
Zone) of rural properties by foreign citizens.
Properties are subject to provincial and local regulations related to the organisation and use of the
properties as well as to regulations protecting historic places (which may also appear on a national
level). Many jurisdictions also have laws on large commercial zones that regulate the use of large plots
of land affecting mainly supermarkets, malls and department stores.
Environmental regulations may appear on a federal (national), provincial and municipal level.
Federal laws provide the minimum standards and provinces and municipalities establish specific
standards and implement specific rules and obligations in order to comply with those standards.
These regulations may result in limitations on the use of properties or in obligations for the owners,
among other effects. Environmental laws apply both to urban and rural properties.
Finally, limitations may arise from agreements or conditions imposed by private parties in the manner
of easements or conditions of sale, as the case may be, that are usually registered in the Real Estate
Public Registry and/or arise of the title to the property. There may also be so called ‘administrative
easements’ that are imposed by local authorities usually for the use or provision of public services
companies (energy, water, etc).
It is also worth mentioning that investments in the acquisition or development of real estate projects
may need to give proper consideration in their structuring to other general regulations (exchange
controls, taxes, etc) that may have specific rules for real estate investments.
ii.
Urban Properties
Limitations for private parties in the use of urban properties are mainly those related to zoning, land
use and construction codes. These regulations are enacted on a municipal level (following directives
of general rules or standards issued at a provincial level).
28
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Zoning regulations rule those matters related to a more general use given to the property
(commercial, residential, etc). Land use refers to the specific activities developed in such properties
(restaurant, shop, etc). Each city has its own urban planning code or a similar regulation including a
zoning map of the city.
Construction codes include regulations on the construction itself and on the requirements to obtain
authorisations.
These regulations have also provisions on the square metres and heights that constructions may have
in a given plot of land and how it may be subdivided.
On provincial level many provinces have regulations regarding large plots of land when they are used
for certain commercial purposes (clothing, food, construction materials, etc). These regulations
establish particular requirements that owners or developers of these plots have to fulfil as well as
how the activities should be developed in those plots. In addition, there might be regulations for
properties on the riversides and coast lines that may result in limitations in the development and use
of properties located in those areas.
In reference to Border Security Zone Law although it is applicable both to rural and urban
properties, there are many urban areas within the Security Zones which plots located are excluded
from the application of this law.
Limitations imposed by laws or regulations may also be imposed not as a general rule but to a
particular property. In this sense a property may be subject of a so called ‘administrative easement’
that are easements imposed by regulations and usually related to the provision of public services
(energy, water supply, etc). These limitations affect only a portion of the property and shall be
mentioned in the title and in the corresponding registry in the Real Estate Public Registry.
Other limitations may arise as a consequence of the regime to which a property is subject due to
decisions in its development. An example of this type of limitation would be those resulting from
the subdivision according to Law 13,512. For the subdivision under this regime the parties have to
execute a deed in which, on the one hand, the units or dwellings are identified as well as the common
areas and, on the other hand, includes rules on the use that those unit may have (housing, offices,
etc, always as permitted by zoning and construction codes), how the decisions are made, how the
owners of each unit shall contribute to the expenses of common areas and services, among other
matters. In addition, the parties may issue internal rules of use that provide for more contingent
matters such schedules and places for disposal of garbage, procedure to use common salons, etc.
Other limitations that may be a result of the decision or agreement by private parties are easements
granted to neighbours in order for example to give right of way or conditions or charges imposed by
the seller or donor of a property that an specific use is given to the property (eg, for a sport club).
This kind of limitations has to be included in the title and mentioned or referred in the Public
Registry in order to have effect on a subsequent buyer.
It is important to mentioned that transfer of real estate as well as the creation, change or extinction
of real rights, has to be made through a public deed with the intervention of a notary that has the
obligation to verify the status of the title, verify the existence of registered limitations and restrictions
of the property, and obtain certificates from the authorities in regards to the property.
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In reference to the exploitation of an urban property, leases are subject to regulations both by the
Civil Code and the Urban Leases Law No. 23,091. According to these regulations, the minimum
length of a lease is two years for housing leases and three years for commercial leases and the
maximum length is of ten years regardless of the purpose.
Tenants may also terminate lease agreement provided that six months of the lease agreement have
passed and subject to previous notification of at least 60 days. In case tenants terminate the lease
(after six months and with previous notice) they shall pay the equivalent of one and a half of the
monthly price of the lease if the termination if during the first year and one month if the termination
is after the first year.
These rules are mandatory thus parties may not agree on the contrary and if they do the terms
provided by law shall apply. Another restriction that may affect leases, especially in an inflationary
scenario, is the prohibition of indexation or adjustment of prices, according to which it will require
the inclusion of a mechanism in the contract to maintain the price of the lease in market prices
throughout the term of the contract.
All these rules, with some changes, will be incorporated in the new Civil and Commercial Code.
iii.
Rural Properties
Limitations for rural properties resulting from local (municipal or departmental) or provincial levels
would probably be mainly related to the possibilities to subdivide the plot or to particular rules for
specific activities or uses of rural lands as well as environmental laws, water regimes, etc.
In addition there are legal obligations to give right of way to properties that have no access to routes
or other ways. If applicable, this obligation will most probably be regulated in an easement between
the parties with the agreement on how the right of way is granted. Other easements that are common
to find in rural properties are those related to the use of water or the access to water sources in
addition or in accordance to those provisions of the water regime laws of the jurisdiction that rule the
use of rivers, lakes and water reserves in each jurisdiction.
All rural properties within Borders Security Zones will be reached by its regulations that impose
restrictions to foreign entities and individuals to acquire properties in the so called ‘Borders Security
Zones’ that are determined in these regulations.
In case a foreign individual or company intends to acquire a real estate property located within these
Zones a special authorisation granted by the National Commission of Security Zones is required in
order to complete the acquisition. It is important to mention that local companies controlled by
foreign shareholders are deemed to be foreign companies for this regime and thus any acquisition
of properties by these companies shall require the authorisation. In the same sense if a foreign
individual or company intends to acquire a local company that owns properties in the Security Zones
the acquisition will have effects due to these regulations.
The term to obtain this authorisation is around six months but in some cases it takes longer.
Moreover, in December 2011 Law No. 26,737 (‘Rural Lands Law’) was enacted which provides for the
Regime for Protection of National Domain on Ownership and Possession of Rural Lands. In February
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2012, the Rural Lands Law was completed by Regulatory Decree No. 274/2012.
Rural Lands Law intends to regulate the limits to ownership and possession of rural lands by foreign
persons – individuals or companies – irrespective of its use or the production to which it might be
dedicated.
Rural Lands Law considers the following as ‘foreign persons’:
Foreign individuals.
Entities controlled by foreign individuals or entities.
Trusts that have more than 25 per cent of foreign (individuals or entities) beneficiaries.
Joint ventures in which foreign persons participate in a percentage that is over that authorised by
Rural Lands Law.
Foreign Public Entities
Simple associations controlled by foreign individuals or entities.
Rural Lands Law establishes the following limits to ownership or possession by foreign persons:
As a general limit: a maximum of 15 per cent of ownership or possession by foreign persons in the
Argentine territory.
Persons of a single nationality may not own or possess more than 30 per cent if the limit mentioned
in a)
Each proprietor shall have a limit of 1,000 hectares or the equivalent according to the location.
Prohibition of ownership or possession of lands next to permanent and relevant corps of water as
well as those located in Security Zones unless authorisation according to Borders Security Zones
regulations.
Rural Lands Law also creates a National Registry of Rural Lands that will have a registry of lands with
foreign proprietors and that may impose sanctions in case of non-compliance with Rural Lands Law.
iv.
Expropriation Events
As a general principle the right to private property is granted by the Federal Constitution which only
admits expropriation for cause of public utility if: the Congress has declared the public interest; and
prior and due compensation has been paid to the owner.
On a provincial level the respective Constitutions include similar provisions.
Both on a federal and a provincial level there are laws that regulate the process of declaration of
public interest or utility and the procedure to determine the compensation of the owner. According
to this procedure if the parties (ie, the Executive Branch and the owner) do not reach an agreement
regarding the amount of the compensation the determinations shall be made by the courts taking
into consideration the constitutional guaranty and the applicable law.
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