Taxes and Factoring

General Comments

The absence of a specific legal framework for factoring contracts means that they are considered to be contracts that are autonomous, atypical, mixed (because they combine a series of acts pertaining to different contractual actions), formal, anonymous, commercial, bilateral, onerous and consensual.

Based on this legal classification, it is necessary to define the tax treatment to be applied to the various parties to the contract and the services that are provided under it.

Tax on the Assignor
The impact of this tax is determined based on the assumption that the assignor is a legal person located in Argentina.

Interest paid on financing services must be pro-rated to determine what portion is deductible, if the taxpayer has both taxable and non-taxable or exempt income (section 81 clause a) of the Income Tax Law).

Interest paid, generally in advance, on financing services is to be accrued over the period of payment until the due date of the invoices giving rise to it.

Costs paid for the various services included in the contract will be deductible if complying with the terms of section 80 of the Income Tax Law (if such costs are required for the generation of taxable income).

The moment when deduction becomes due will depend on their nature. In general terms, costs associated with collection risk insurance are represented by an increased rate of interest, so that the treatment to be granted is the same as that given to the cost of financing.

Collection management costs are generally linked to a percentage of the instruments for which the service is contracted. Regardless of whether the factoring contract is global or individual, the cost is to be accrued on the basis of the date of issue of the basic instrument (the invoice, for example) and the due date established for it.

Economic and financial consultancy service costs are accrued as provided.

Value-added tax
The law established that all services arising from factoring contracts are subject to this tax. The fiscal credit arises at the time the transactions giving rise to the tax are carried out.

In the case of interest and costs related to the collection risk, this is the moment when collected by the factor (section 5 clause b) point 7). The rate to be applied shall be either 10.5% or 21%, depending on whether they have been generated by a financial entity or a factoring company.

A difference exists in the costs related to collection management services, whether agreed as part of global or individual assignment. When the cost of the service collected by the factor is generated at the time the client receives the corresponding documentation and is independent from the moment of collection, that will be the moment when the taxable event takes place, as well as the generation of the corresponding invoice and its calculation as a fiscal credit by the party giving rise to the service.

When the cost to be paid by the assignor for the service is paid to the factor when the documents are collected, that will be the moment the taxable event takes place, when it should be billed and claimed as a credit.

Fiscal credits arising from international factoring transactions can be recovered by the client, as long as they are directly related to export operations (section 43 of the Income Tax Law).