The ruling coalition achieved two significant legislative successes on Wednesday, with the Chamber of Deputies endorsing a new investment incentives framework for emerging industries, referred to as “Super RIGI,” alongside a resolution with hedge funds possessing bonds from Argentina’s 2001 default. The new Incentive Regime for Large Investments in New Industries (RIGI for New Industries) provides tax stability and foreign-exchange benefits for a duration of 30 years to projects valued at a minimum of US$1 billion in sectors deemed new or in the early stages of development in Argentina. While the agreement to compensate the so-called “holdouts” allows the country to conclude protracted legal disputes regarding bonds issued prior to the nation’s default on its debt in December 2001. On Wednesday afternoon, the Lower House approved a US$171 million payout to hedge funds Bainbridge Ltd. and Attestor Value Master Fund, following the Senate’s earlier approval in June.
The investment groups acquired defaulted Argentine bonds and opted not to engage in the country’s significant debt restructurings in 2005 and 2010, along with a 2016 settlement that was reached with the majority of remaining holdout creditors. Instead, they initiated legal action against the country in United States courts, prompting a discovery process focused on uncovering Argentine assets that might be subject to seizure to fulfil the claims. Under the terms of the litigation, Congress had until June 30 to approve the settlement. Defending the deal, libertarian Deputy Alberto ‘Bertie’ Benegas Lynch characterised the default as a ‘infamous’ episode and asserted that Congress had a chance to ‘heal this wound of international dishonour’.
Opposition lawmaker Itaí Hagman expressed disapproval of the agreement, stating that “what is being discussed here is paying vulture funds, even if the government refers to them as holdouts.” He stated that the administration’s economic strategy aimed at minimising country risk “in order to plunge Argentina into debt once again.” The agreement received approval with 139 votes supporting it and 91 opposing it. Promoted by the Economy Ministry, the bill — which must now be voted on by the Senate — aims to draw significant investments in high-tech sectors through a comprehensive package of tax, customs, and foreign-exchange incentives. The regime is applicable to projects in sectors that are either not yet developed in Argentina or are still in an experimental phase. The initiative was approved by a margin of 130 votes to 106, with seven members choosing to abstain from the vote. Support was garnered from La Libertad Avanza, PRO, the UCR, MID, and various provincial allies. Unión por la Patria, Provincias Unidas, the Coalición Cívica, and the Left Front expressed opposition in their votes.
To garner wider support, the government implemented various modifications during committee discussions, such as mandating that a minimum of 20% of project inputs be procured locally, providing incentives for research and development expenditures, establishing a public project registry, and instituting a formal evaluation process for extensions. During the debate, Benegas Lynch asserted that “capital goes where there is business and institutional security,” whereas Unión por la Patria Deputy Mario Manrique contended that the proposal represented “a deal between private individuals.” And “We need investments and we are not against capital,” Manrique stated. “However, we must not permit an excessive number of advantages to be extended to investors whose specific actions are unclear, especially at the expense of those who have been generating and fostering quality employment in Argentina for many years.”
Essential elements
The regime is applicable to projects that require a minimum investment of US$1 billion, with 20% of that amount to be committed within the initial two years. It encompasses:
- A five-year window to join the regime and 30 years of regulatory stability supported by international arbitration.
- A reduced corporate income tax rate of 15%, compared with 25% under the standard RIGI.
- A prohibition on participating jurisdictions imposing new local taxes, along with a 0.5% cap on gross turnover taxes in adhering provinces.
- Unlimited carry-forward of tax losses.
- A 3.5% tax rate applies to dividends and distributed profits.
- Exemptions from import and export duties are associated with approved investment plans.
- A decrease in employer social security contributions to 10%.
- A research and development incentive permits each dollar allocated to R&D to be recognised as two dollars towards the US$1 billion threshold.
- A stipulation that a minimum of 20% of overall project expenditures must be allocated to local suppliers.