The Directorate General of Taxation (“DGI”) has just announced Resolution No. 488/2023 (hereinafter, “the Resolution”), by virtue of which it establishes the terms and conditions under which the Tax Administration will apply the Tax on Income from Economic Activities (IRAE) on passive income from abroad.
Recall that Law No. 20,095, regulated by Decree No. 395/022, has come to consider as Uruguayan source – and, therefore, taxed by the IRAE – the income obtained by IRAE taxpayers members of a multinational group, derived from the exploitation of patents and software abroad or other assets (also located or exploited abroad). provided that they do not meet certain local substance requirements.
The Resolution has clarified some aspects of the regulations in order to facilitate their application and to regulate the information that taxpayers must provide to the DGI in the sworn statements provided for by the aforementioned law and regulatory decree.
Below is a summary of the core aspects.
Income included and exclusions
The Resolution clarifies that the income from the alienation or use of trademarks abroad, which will be subject to taxation (whether or not the substance requirements are met), are those obtained by a local entity that is part of a multinational group. Therefore, the commercial exploitation of a trademark abroad by a company that is not part of a multinational group will continue to be of foreign source and, therefore, not taxed.
The Resolution also specifies that fictitious interests, as well as exchange differences, are not included in the extension of the source, as long as these do not come from the assets generating passive income abroad and from brands.
Holding companies or holding companies
The Resolution establishes that an entity will be considered to have as its main activity to acquire and maintain equity interests in other entities or real estate, and that it does not carry out any substantial commercial or investment activity, when the monthly average of the assets directly associated with said activities represents at least 75% of the total assets of the entity, during the entire period of holding of those.
In case of complying with the above, these entities will be considered to have an adequate economic substance for a year, with respect to each asset generating passive income, when they employ human resources accordingly and with adequate facilities.
The Resolution considers that these entities will comply with the requirement of having human resources commensurate when: (i) the entity has the majority of its human resources resident in national territory and they are duly qualified to carry out the activities that generate the corresponding income, or (ii) at least one director resident in national territory with the appropriate qualifications to perform said position, regardless of the functional link declared to the Social Security Bank (BPS), that is, whether it is with remuneration or without remuneration.
Affidavit of entities holding patents and software
Entities that obtain income derived from the alienation or exploitation of patents or software abroad, must submit to the DGI an affidavit in order to justify the “qualified income”, that is, those that are not taxed by the IRAE.
In accordance with the Resolution, the DGI must be informed of each asset that has generated qualified income in the year: (a) identification of the asset, country and date of its registration in the aforementioned country; (b) amount of expenses and costs included in the numerator and denominator of the quotient determining qualifying income; (c) amount of qualifying income in the fiscal year; (d) declaration of non-relationship with non-resident service providers; (e) declaration that the amounts corresponding to expenses and costs correspond to the development of the aforementioned assets.
Affidavit of qualified entities
Entities that obtain passive income abroad
that do not derive from patents or the exploitation of software, must submit an annual affidavit in which they must state the following information, with respect to each category of assets generating passive income abroad: (a) the amount of income accrued in the year, discriminated according to income category; (b) for each month of the financial year, the human resources employed by the entity in national territory to administer such assets; (c) the details of the facilities in national territory in which the entity has carried out the activities aimed at obtaining the aforementioned income; (d) whether the strategic decisions regarding the income-generating assets were taken by the company itself, and whether it bears the risks inherent in its activity in national territory; (e) the amount of expenses and costs incurred in the period, in relation to the acquisition, holding or disposal, as the case may be, of the assets generating the corresponding income; (f) when the activity is carried out totally or partially by third parties in national territory, identification of the providers of these services, the total number of hours spent for the development of the same, and the detail of the facilities in which the outsourced activities were developed.
Deadlines for the submission of affidavits
The aforementioned affidavits will be submitted within the same deadlines provided for the presentation of the IRAE affidavit.
To submit the affidavits corresponding to fiscal years ended prior to December 31, 2023, taxpayers will have until April 2024.
Tercerizaciones
The entities that provide the outsourced services to the entities to qualify, must detail in the invoice the human resources affected, the hours applied for the provision of said services in the country and the detail of the facilities where they were provided.
This obligation will apply to invoices issued on or after April 1, 2023.
This communication is for information purposes only. It cannot and should not be understood as legal advice from this firm. Bergstein has a team of specialists who can be contacted to assist you in this matter.
For any questions regarding this material, please contact Dr. Domingo Pereira ([email protected]) and/or Dr. Guzmán Ramírez ([email protected])
