EMERGENCY LAWS vs. RIGHTS GRANTED UNDER PRE-EXISTING LAWS: THE ARGENTINE CASE
| Jurisdiction | Derecho Internacional |
(April 2003)
EMERGENCY LAWS vs. RIGHTS GRANTED UNDER PRE-EXISTING LAWS: THE ARGENTINE CASE
Fortunati &Lucero — Abogados
Buenos Aires, Argentina
INTRODUCTION
• This presentation shall discuss the developments that occurred in the República Argentina (Argentina) as a consequence of the passing of the so-called emergency laws and regulations passed by the National Government1 as a consequence of the financial crisis Argentina had started to go through in early 2001 and, unfortunately, is still suffering. In particular, the presentation shall discuss the effects that those emergency laws and regulations had on certain rights granted to mining companies under a special regime set forth in 1993. Under this special regime, mining projects are granted a tax stability guarantee for a period of 30 years. The concept "tax" that applies to the stability guarantee includes the foreign exchange regime.
• As of the time when this presentation is being prepared, the results of those effects are not yet clearly defined. It is likely, however, that at the time the RMMLF Institute is held in Lima in late April 2003 the situation would have been resolved.2
• The contents of this presentation are organized as follows:
1. A description of the legislation providing for the tax stability guarantee referred to in the introduction.
2. A description of the emergency legislation passed in 2002
3. A discussion on the conflict that arose as a consequence of the interpretation given by the Argentine Central Bank to the effects of the emergency decrees issued by the National Executive Branch, and of the legal issues involved in the solutions thereof.
4. A conclusion.
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I. THE MINING INVESTMENT LAW
• Passed in 1993, the Mining Investment Law No. 24, 1963 (MIL) contains a variety of incentives to the mining investment and activities. It is divided into nine chapters, dealing each one with various topics, namely: Scope, Activities Considered, Investments' Tax Treatment, Imports, Royalties, Environmental Care, Enforcement Authority and Regulatory Provisions.
As indicated in the introduction, this presentation shall concentrate on the tax stability guarantee governed by Chapter IV, Title I, Section 8 of the MIL, as it relates to the foreign exchange regime.
•In its original wording, Section 8 of the MIL reads:
"Section 8° - Mining projects comprised in this regime will enjoy a tax stability guarantee for a period of thirty (30) years, to be counted as of the date of submission of the relevant feasibility study. The tax stability guarantee implies that firms dealing in mining activities within the framework of the current Investment Regime will not see their total tax burden, as determined at the moment of submission of the feasibility study, increase as a result of hikes in tax contributions and tax rates, regardless of their denomination, at the national, provincial or municipal levels, adhering to and operating pursuant to Section 4, last part, or as a result of the creation of new taxes covering them. The provisions set forth herein will also apply to tariff and exchange regimes, exclusive of exchange parity and tax reimbursements, refunds or repayments resulting from exports". (Emphasis added)4
• In turn, the MIL was further regulated by Decree 2686/1993. Section 8 thereof reads:
Section 8°: The tax stability guarantee encompasses all kinds of taxes, including tax rates and contributions as well as exports and imports fees or duties. In order to be entitled to the tax stability guarantee, firms requesting it must submit a feasibility study of a new project or of the extension of an existing productive unit, which must be endorsed by duly licensed, specified and qualified professionals. The feasibility study must be submitted according to the requirements established by the relevant enforcement authority. The total tax burden will be determined based on each of the jurisdictions, national, provincial and municipal, and it will be considered separately for these purposes. A tax burden increase will be understood as the one emerging in each jurisdiction as a result of the introduction of new taxes or of the increase in tax rates or
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amounts, and which is not offset within the same jurisdiction by the elimination of other taxes or a reduction of the mentioned items".5
• Six years after its enactment, the MIL was amended by Law No. 25,429, which among other sections of the MIL amended Section 8. The main purpose of the amendment of Section 8 was to clarify the scope of the tax burden that, pursuant to the MIL provisions, is crystallized by the projects under the tax stability guarantee because the scope and actual extent of it had been debated between mining companies and the National Government as a consequence of the implementation of new taxes and levies by the National authorities, mainly by the administration of President De la Rúa as from 1999.
Consequently, as an attempt to minimize the uncertainties the National Congress passed into Law No. 25,429 a bill that had been drafted by Ms. Cristina Zuccardi, a member of the House of Representatives elected in the district of Mendoza.
However, Law No. 25,429 did not amend the wording in Section 8 as it relates to the foreign exchange regime.
• Which was such foreign exchange regime or, in other words, why was it so critical?
Two years prior to the enactment of the MIL, this is in 1991, the Menem administration had issued Decree 530/1991 whereby it had implemented a regime in which the export and import of hard currencies, the ability to remit hard currency abroad and the freedom to keep bank accounts abroad by Argentine exporters - where the proceeds of Argentine commodities and products could be kept - was absolute. Decree 530/1991 achieved this practical, crucial result by the repealing of certain sections of two decrees that had been adopted in 1964 and 1986 and that had been in effect since the dates of their respective adoptions. Normally in need of hard currencies proceeds from the export of its domestic products Argentina had lived under the effectiveness of these two regulations that had forced Argentine exporters to bring into the country those proceeds to be sold to the Central Bank, who would in turn liquidate the relevant amounts in local currency at the relevant
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exchange rate. Exchange controls, then, had been the rule until the adoption of Decree 530/1991.6
• It is well known the dramatic increase in the mineral exploration and mining activities in Argentina in the years that follow the enactment of the MIL. Between 1996 and 1991 the mining activity reached the following approximate figures: (i)
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US$ 2.536 billions invested in exploration and mining projects; (ii) that produced US$ 3.460 billions of minerals exports, and (iii) created 19,000 new jobs 7 . These amounts pertains to the period when Decree 530/1991 was in effect. Given the fact that most of the capital flow that financed this investment increase was originated abroad, it is clear that the legal framework implemented by such regulation was of paramount importance in the decision to invest equity or to grant loans to the project owners and/or operators. Structures usually implemented...
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