RIGI for dummies

The Regime of Incentives for Large Investments (RIGI) is the most important legislative move by the government beyond the current situation. It underwent fortunate changes in its parliamentary treatment and has just been regulated, although some issues remain unresolved, such as determining the implementing authority.

Structure

Conceptually, the regime is simple: it grants extraordinary tax, customs, and exchange benefits for 30 years to projects with large investments in eight sectors: i) forest industry; ii) tourism; iii) infrastructure; iv) mining; v) technology; vi) steel industry; vii) energy; and viii) oil and gas.

The benefits are justified by the "substantial capital" of the investments and the "long recovery time of the investment"; therefore, the scheme is subject to restrictive interpretation.

The period for joining the regime is 2 years from the date of publication, extendable once by the Executive Power for an additional year.

Eligible entities

A single-purpose project vehicle (VPU) with full legal, accounting, and functional autonomy must be used. It can be: i) a corporation; ii) an existing branch (with the disadvantage of not being a separate legal entity, with implications for the liability of the parent company); iii) a "dedicated or special branch" created for this purpose; or iv) a temporary business union (the most convenient and commonly used associative contract) or another associative contract.

In addition to the VPUs, there are two additional categories: the "long-term strategic export projects," those that can facilitate Argentina's positioning as a new international supplier in markets where it does not have a significant presence; and the RIGI providers, who provide services to one or more VPUs adhering to the regime.

Adherence and Investment Plan

Joining the regime is an administrative process that is based on the submission of an investment plan. This plan must specify: i) the nature of the project, i.e., the acquisition, production, construction, or development of the assets involved; ii) the amount of investment, specifying the amount allocated to the start, construction, operation, and closure; iii) the source or mode of financing, which must be exclusive to the VPU; iv) estimated direct and indirect employment; v) local supplier development plan, to which at least 20% of the total payment amount to suppliers must be allocated, subject to availability and market conditions; vi) estimated production and exports; vii) statement of the technical, economic, and financial feasibility of the project; viii) current and pending permits (mainly relevant for mining and oil and gas); and ix) a sworn statement that "the local market will not be distorted," which aims at competition defense and the exchange market.

There are two key concepts for calculating the investment. The first is "computable assets," which include everything from shares and corporate participations (not exceeding 15%), essential services for the project (20%), real estate to mining, oil, and gas concessions (15%). These assets must remain allocated to the project for their useful life, until its end, or for the 30-year stability period of the regime.

The second is the concept of "long-term," which arises from the ratio between the present value of the expected net cash flow during the first 3 years and the net present value of capital investments over the same period.

Reference amounts

The average minimum investment is USD 200 million, and the maximum is USD 900 million. For long-term strategic export projects, it is USD 2 billion. The total amount does not need to be disbursed at the start of the project: the condition is that within the first 2 years, the investment reaches 40% of the total amount.

The technical justification for the reference amounts, at least in the law (neither text nor preambles) or its regulation, is unknown.

Exceptions that may lead to discretion regarding computable assets and deadlines should be highlighted: the implementing authority may change the percentages of computable assets; also the time of their allocation to the project; the same applies to disbursements during the first two years (e.g., the minimum 40% can be reduced to 20%).

Authorization

Within 45 days of submitting the application, the implementing authority must approve or reject the request. The period is considered essential, legally it does not allow delays. Approval is retroactive to the date of submission, so the benefits may cover purchases and investments made prior to approval. In case of rejection, a new request may be submitted up to two times within the same calendar year.

Benefits, Privileges, and Incentives

The benefits are explicitly considered acquired rights for a period of 30 years, which is legally redundant but highlights the intention to emphasize stability and permanence.

The granted privileges are immutable, to the point that the law instructs the judiciary to declare null and void any rule or governmental act that questions them. This is legally questionable (due to the separation of powers), as is the assertion that Congress limits its future powers (which could lead to compensation for any changes; it is different from asserting, with some Panglossian naivety, that Congress cannot modify anything).

The tax and customs incentives are focused on four concepts. For income tax, the rate is 25%; a 7% rate applies to the net income derived from dividends and profit remittances, and from the 7th year, 3.5%; finally, a special depreciation regime is established for movable goods, mines, quarries, forests, and similar assets, along with loss carryforwards.

For VAT, payment with tax credit certificates in goods, investments in works, and services is provided. Regarding "debits and credits," it is 100% computable to pay income tax. Finally, the importation of goods is free of import duties and any similar levy; future restrictions or prohibitions would not apply.

Regarding exchange incentives: export collections are exempt from being settled in the foreign exchange market: i) 20% during the first 2 years; ii) 40% in the 3rd year; and iii) 100% from the 4th year onward. Currency obtained through financing is freely available.

As can be seen, the tax and customs benefits are enormous, as is the cost to the treasury in return.

The normative justification to avoid legal challenges based on the constitutional principle of equality by those excluded (e.g., for not reaching the minimum of USD 200 million, which, as mentioned, lacks explicit technical support; or for being in other sectors, or simply for being outside) is that it is "a temporary advancement of macroeconomic investment solutions." The warning here is about the permanence of rights if those solutions do not occur or are not stable.

Jurisdiction Extension

The regime concludes with an extension of jurisdiction to foreign arbitral tribunals. At the investor's choice: i) Permanent Court of Arbitration; ii) International Chamber of Commerce; iii) ICSID (World Bank).

The benefit in this regard is as significant as the tax, customs, and exchange incentives. It is enough to consider the almost unanimous jurisprudence against Argentina in these arbitral forums over the years. The fact is that the experience of jurisdiction extension, inaugurated in the 1990s with bilateral investment treaties, has not been good for the country; here it is reinstated, without reservations or taking into account the many lessons learned, which are discarded.

Conclusion

The RIGI is an innovative proposal, full of opportunities and challenges. Without a doubt, its success will largely depend on two factors: macroeconomic stability, but above all, institutional stability. And the latter is not something that can be achieved solely with laws or extraordinary benefits. As ALBERDI rightly said: "A good political habit is worth more than a hundred well-written laws."