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Law 26.154 awards tax benets for investments in the exploration and exploitation of oilgas resources in Argentina.
The benets are awarded provided investors enter into partnership with ENARSA, unless
it expressly waives this right.
The law awards incentives through exemptions or reductions in VAT, income tax,
minimum presumed income tax and importation duties.

Authors Dr Claudio A Onetto and

Andres E Onetto

Are new regulations boosting the oil and

gas industry in Argentina?
The Argentine government is issuing
new regulations aimed at attracting
investors to explore and exploit oil and gas
resources. Law 26.154 (the Law) published
in the Ocial Gazette on 1 November 2006,
aims to promote, within the legal framework
of Hydrocarbons law 17.319, the exploration
and exploitation of oil and gas resources,
including the continental shelf, by inviting
provincial states to be bound by the law.
The tax benets are directed at
investments in exploration areas falling
within the scope of law 25.943 (ENARSA
law) under which Energa Argentina SA
(ENARSA) was created at the end of
2004. ENARSA is a national state entity
whose shares are 100 per cent owned by the
Argentine government. The Law also provides
tax benets for exploration areas under lease
granted by law 17.319 and related regulations,
provided certain conditions outlined in s II of
the Law are complied with.


Tax benets are only applicable to exploration
areas granted by ENARSA and also to those
areas with geological capability in respect
of which no third party rights have been
granted by the hydrocarbons law and which
are located in those Provincial States which
have agreed to be bound by the Law, in
accordance with the following categories:
Continental shelf, for 15 years;
Non-productive sedimentary basin areas,
for 12 years;
Sedimentary basin areas under
production, for ten years.

This article considers the new regulations introduced in Argentina to boost

investment in the oil and gas industry. The Law is in force, although certain aspects
still have to be regulated by the Regulatory Executive Branch Order to be issued by
the Ministry of Planning. (The date when this Order will be issued is not known.)
However, technically, the Law is in full force.

through public tender or any other process

contemplated by the Law.
The tax benets will only be granted
under ENARSA law if the investors enter
into partnership with ENARSA, unless it
expressly waives this right.
ENARSA must share in the partnership
prots and art 4 of the Law provides that
ENARSAs share in the partnership prots
must be reasonable taking into account its
contributions, assumed liabilities and tax benets
granted by the Law, however no guidance is
given as to the meaning of the term reasonable.
To enjoy the tax law benets, exploration
authorisations must be granted for a
minimum time:
Continental shelf: ve years.
Non-productive inland sedimentary basin
areas: four years.
Sedimentary basin inland areas under
production: three years.
These authorisations may be extended by
up to 50 per cent of their duration.
Holders of the exploration authorisations
granted under the ENARSA law will have
access to bordering areas provided evidence
can be produced as to the geological continuity
between the bordering areas and provided third
party rights remain harmless.


April 2007

Value Added Tax ('VAT')

The total amount of exploration expenses and
exploitation investments is subject to VAT
and the reimbursement or credit regulated by
the VAT law is governed by law 25.924 which
refers to the Promotion of Investments in
Capital Goods and Infrastructure Works (18
April 2004). The law is applicable to persons or
corporations organised or authorised to do
business in the country and duly registered in
accordance with the proceedings outlined in
the Argentine regulations. The beneciary of
the Law may be reimbursed VAT in advance
of the term outlined by the VAT law or the
beneciary may shorten the depreciation term
in his annual tax ling. This must take place
during the term in which the tax benets are
awarded. This benet is also applicable to
temporary joint ventures.

Income Tax

All terms are calculated from and

including the exploration authorisation date.
Exploration and exploitation of the areas
referred to above will only be granted by the
Provincial States or by the National State

It is worth mentioning that Argentinas tax

regime is applicable to those who already enjoy
tax incentives in the oil industry. The Law
only modies the tax regime applicable to the
oil and gas industries. The Law provides that
the annual quota for the tax incentives will be
addressed by the Federal Budget law, and will be
allocated to the Provincial States in accordance
with their potential oil resources.

The taxes and duties referred to above are:

Value Added Tax.
Income Tax.
Minimum Presumed Income Tax.
Importation Duties.

Operation expenses and investments made

during the exploration stage and investments
for exploitation within the agreed term
(referred to above) will be amortised, which
means they will be deducted from the taxable
amount, in three consecutive annual equal

Butterworths Journal of International Banking and Financial Law

Andres E Onetto is a partner at Onetto, Abogados, Buenos Aires, founder of the Investment
Banking Group and specialises in project nancing, private equity an mergers and acquisitions.

instalments in the year in which they were

incurred. The provisions of law 29.924
(incentives for investments in capital goods
and infrastructure works) which do not
contradict the Law are also applicable.

Minimum Presumed Income Tax

This tax, which was introduced in 1998 by
law 25.063, levies taxes on worldwide assets
of Argentine incorporated companies or
unincorporated businesses at a 1 per cent
rate. The Law provides that assets belonging
to holders of exploration authorisations and
exploitation leases subject to or granted under
the Law, are excluded from the tax under law
25.063 from the authorisation date until the
third year of the exploitation lease directly
related to the exploration authorisation.

The holders of exploration permits and
exploitation leases in exploration areas
regulated by the Law are exempted from
import duties and from any other duty, special
tax or charge, except for charges for services
rendered to import capital goods, or parts or
components of such goods, not manufactured
in the country and necessary for the exploration
and exploitation activities. Capital goods (and
their parts or components) imported under the
exemption of duties and charges granted by the
Law, can be sold or transferred to third parties
provided the work is completed by the time
the benets under the Law are still applicable
to them or the ending of the goods useful life,
whichever occurs rst. Otherwise the importer
of the capital goods is subject to the general tax
regime, its charges and duties.

Tax benets for exploration

areas under lease granted by the
Hydrocarbons law (17.319)
The exploration areas are classied as follows:
(a) Continental shelf areas under production
but partially explored. The leaseholder
may request the Secretary of Energy to
subdivide the area and the area resulting
from the subdivision will constitute a new
area subject to an exploration permit. The
benets of the law will be applicable to the
new exploration area for 12 years from the
date of the exploration permit.

(b) Inland production areas partially explored

are subject to the same regime as paragraph
(a) above but the tax benet will be
applicable for ten years only.
The leaseholder has to submit a proposal to
the Authority to subdivide the area under the
lease, resulting in a new area. The exploration
permit for the new area will be granted
through a public tender process, giving the
leaseholder of the subdivided area a rst
option right to match the best bid, exercisable
within the following 30 days of the resolution
on the process given by the Authority.
To enjoy the tax benets of the law, the
holder of the exploration permit and/or the
exploitation lease has to be associated with
ENARSA. Exploitation permits have to be
granted for the following minimum terms:
Continental shelf under production, four
Inland subdivided area under production,
two years.
Both terms may be extended by up to 50
per cent by the authorities.

the obligations regarding investments,

productivity and maintenance; repeated
failure to inform, to facilitate inspections or
to observe technical procedures required for
the execution of the works; among others.
If the events referred to in the rst two
paragraphs above occur, the beneciary is
required to pay the taxes exempted or deferred
plus interest and penalties, in accordance with
the Tax law. The benets granted by the
law will be eective during the exploitation
term provided the rate of the taxes assessed
on the production to be exported, according
to law 25.561, is equal to or higher than the
applicable rate of the law.
Note also that art 6 of the law sets forth
a temporary duty on the exportation of
hydrocarbons, applicable for up to ve years
but which matured in January 2007. This
duty was extended for another ve years, by law
26.217, on 15 January 2007.
The law is not applicable to projects
aected by law 19.640 which relates to the
tax-free area of Tierra del Fuego.



Biog box
Dr Claudio A Onetto is a senior partner at Onetto, Abogados, Buenos Aires. He is head
of the rm's energy practice group and has extensive experience in oil-gas taxation and
project nancing. Email:

Extension of the term
In the event the subdivision application of the
area subject to the lease is granted, the new
area benets from a ten-year extension of the
lease at its expiration date. The new lease will
enjoy the tax benets of the Law in respect
of Income Tax, VAT and Importation
referred to in the second point (Tax Benets:
analysis) of this article.

Termination of the benets:

If any of the following events occur, the
tax benets granted under the law will be
expiration of the terms of the exploration
permits and exploitation leases;
non-compliance with the investment plan;
termination of the lease for any of the
reasons set out in s 8 of the Hydrocarbons
law which refer to a default in the payment
of the annual cannon and/or royalties
within the three months following the
maturing payment date; substantial
failure to comply without cause with

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In our view, one of the key drivers of the success

of the tax incentive regime in attracting new
investments will depend on the terms and
conditions of ENARSAs partnership share.
In particular, in order to allow third parties
to appraise the tax benets, the economic and
nancial meaning of the word reasonable,
referred to at the beginning, should be claried.
Further, the fact that, according to the Law,
ENARSAs annual share in the partnership
prots has to correlate with the benets
granted by the Law, may well be interpreted as
a scal savings measure resulting from the tax
incentives which may not look particularly
attractive for prospective investors.
Also worth noting is the absence of a
reference in the Law as to the role of ENARSAs
representatives on the Board of the partnership
and whether they will exercise the veto power
on commercial transactions, investment
plans, new projects, selection of clients, etc.
The government should clarify this point,
which may well deter companies wanting to
invest and take advantages of the tax benets
outlined in the Law.

April 2007