I INTRODUCTION

Since Mauricio Macri's appointment as President of Argentina on December 2015, the country has become appealing for foreign investors.

There is a sense of optimism about the state of the country, particularly in some industry sectors. Since President Macri took office, a couple of the measures taken reflect this optimism, for example the elimination of foreign exchange restrictions and the negotiations with the holdouts of the outstanding public external debt, with which, after 15 years of open fighting, Argentina has finally reached an agreement. These measures, together with tighter regulation of the economy, have generated an optimistic atmosphere in the Argentine market as the country is expected to receive a flood of new investment in the coming years, as a result of the confidence that the new government has instilled, and the return to a trusted market economy after the 2001 bottomless crisis and more than a decade of populism.

In addition, in August 2015 a new Unified Civil and Commercial Code entered into force, which superseded the Civil and Commercial Codes that had been in force in the country for the 150 years. As only two years have passed since the implementation of this new Code, its impact is yet to be analysed.

II THE YEAR IN REVIEW

In 2017, the Argentine energy sector continued to receive more attractive incentives from the government than in previous years. In particular, regarding the renewable energy sector, the government tendered various construction projects, focusing on solar energy and wind energy generators. Eighty-eight projects were allocated for a total of 2,043MW.

The Macri administration implemented policies fostering mining development as soon as it took office. The mining sector celebrated the removal of mineral export duties in the range of 5 per cent to 10 per cent of mineral sale profits. The new administration has shown a commitment to respect the existing 'rules of the game' that enabled the development of mining activity during the 1990s, principally Law No. 24,196 (the Mining Investment Law (MIL)). The MIL established benefits for mining companies registered in the Mining Secretariat's Mining Investors Registry, including but not limited to:

    1. 30 years of tax stability as from the filing of the project's bankable feasibility study;
    2. the right to deduct from the income tax statement 100 per cent of the amounts invested in prospecting, research, mineral and metallurgical tests, and other works aimed at determining the technical and economic feasibility of the project;
    3. accelerated depreciation of investments made in infrastructure, transportation, construction of plants and equipment for the necessary infrastructure for mining activity;
    4. exemption from paying income tax derived from profits of the mines and mining rights, used as payment for the subscription of shares of registered beneficiary companies; and
    5. limits on applicable percentage of royalties (applicable cap: 3 per cent 'mine mouth').

The industry is therefore optimistic because of the positive political changes affecting mining since the change of administration.

Law No. 26,737 dated 30 December 2011 (the Rural Land Law) regulates and limits the purchase of rural real estate by foreign nationals. This Law does not affect any acquired rights as of the date of enactment and only applies to acquisitions or sales of land carried out after the applicable date, which may affect mining and energy projects. It sets out the following limits on foreign ownership or possession of land:

    1. in general, a limit of 15 per cent of foreign ownership or possession of rural land in the national territory. Persons and entities of the same foreign country may only comprise 30 per cent of this 15 per cent quota;
    2. each foreign owner or possessor may only hold a total of 1,000 hectares of land, within the above-mentioned percentages and depending on the specific jurisdiction (i.e., the limit may be less than 1,000 hectares in some jurisdictions); and
    3. foreign nationals may not own any land that includes permanent and important bodies of water, or any land located in a border security zone.

In 2016, Decree 820/17 was enacted by the government, which made the limitations for the purchase of rural real estate by foreign nationals a little more flexible. This Decree is expected to be amended in the near future.

In September 2016, Law No. 27,271 was enacted. This law created an inflation-adjusted unit called the UVA, an instrument for savings, loans and investments for natural and legal persons or for the public sector, to be used for the long-term financing of the acquisition, construction or extension of real estate property in Argentina. This law also modified Article 2210 of the Civil and Commercial Code, establishing a new term of duration for mortgages of 35 years.

The mortgage system in Argentina was virtually non-existent until mid 2017. However, with Law No. 27,271 and some other regulations issued by the Central Bank, national and private banks began to grant 30-year mortgage loans in Argentine pesos for housing. They have been flooded with requests from prospective residential property purchasers, which has resulted in a rise in house prices. This has been one of the main developments taking place in the real estate market because many paradigms have changed, not only in developers' minds and in the legal structuring of real estate projects, but also in the purchasers' minds because new opportunities to participate in the market now exist.

In June 2017, Communication A 6250 was enacted by the Central Bank, which allows financial entities to accept the following guarantees for the credits they give:

    1. first mortgage on real estate property;
    2. regarding real estate property allocated in a trust, when in the trust agreement, the financial entity has the first preference of payment regarding the rest of the creditors;
    3. trusts that have the object of guaranteeing the payment of financing for construction of real property (when a number of conditions are complied with);
    4. assignment in guarantee, including purchase agreements regarding plots or other real estate property that are already constructed where mortgages cannot be given as the real estate property is not registered in the corresponding real estate registry; and
    5. assignment in guarantee of the rights of those real estate developments implemented through trusts or construction corporations.

Communication A 6250 was enacted with the aim of creating a friendlier environment for the financing of real estate projects for developers, but so far has not achieved this. In any event, many measures are being taken by the authorities to support the development of projects in Argentina.

On 29 December 2017, Law No. 27,430 was enacted, which encompasses the Tax Reform and the Tax and Accounting Reassessment. The most relevant aspects and amendments of this law include:

          1. Income tax:

• gradual reduction of the corporate income tax rate (30 per cent in 2018 and 2019, and 25 per cent from 2020 onwards) applicable to non-distributed profits;

• additional tax on distribution of dividends and profits (7 per cent rate in 2018 and 2019, 13 per cent rate from 2020 onwards);

• special sections for indirect transfer of assets located in Argentina, through the transfer of rights over foreign entities;

• taxation of income derived from financial assets currently exempt for individuals, undivided states and non-residents;

• 15 per cent income tax on the sale of real estate (except for housing) has replaced the tax on the transfer of real estate (Law No. 23,905).

• equalisation tax (Section 69.1 of the Income Tax Law) stopped being applicable to dividends or profits arising from income of fiscal years beginning on 1 January 2018;

• inflation adjustment will be applicable under specific circumstances; and

• extension of the tax transparency regime (controlled foreign companies rules) to the trusts, foundations and similar entities as well as to companies and other entities from a foreign country, as long as they meet certain requirements.

          1. Value added tax (VAT):

• taxation on the provision of digital services provided by non-residents, when the services are effectively used or exploited in Argentina. A special tax collection regime is established for these cases;

• to promote investments and reduce their financial costs, a mechanism for recovery of input VAT (VAT credit) derived from some transactions is established; and

• a mechanism for recovery of VAT technical credit balance is issued, under special circumstances, for entities developing public services activities.

          1. Tax procedure:

• a preliminary step for a closing voluntary agreement has been established before the tax assessment, which can be authorised by the Tax Authority under special circumstances;

• amendments to the penalty regime (graduation of fines, types of penalties, etc.); and

• implementation of the mutual agreement procedure provided in the treaties to avoid double taxation signed by Argentina and advance pricing agreements for international transactions.

          1. Criminal tax regime:

• increase of thresholds triggering tax evasion;

• illegal appropriation of taxes or social security resources: extension of the term of 10 business days to a term of 30 consecutive days to determine whether the crime was committed;

• repeal of the penalties for corporations; and

• amendments to the special regime to drop tax evasion charges, which will be only applicable to cases of evasion (simple and aggravated) and illegal use of tax benefits.

          1. Tax and accounting reassessment:

• The reassessment may be performed in the first fiscal year after the Law was enacted (i.e., ending 31 December 2018).

III RISK ALLOCATION AND MANAGEMENT

As mentioned in Section I, the Argentine project finance sector is no stranger to financial and political risks. Once beset by military dictatorships, Argentina has had a democratically elected government since 1983, and has adhered to a system of representative democracy ever since. Politically, Argentina has been, with some exceptions, stable for the past few decades; economically, it has experienced both surging growth and daunting setbacks. Therefore while political risks are minor, Argentina's recent economic history has left a legacy of regulations that continue to dramatically affect project finance and construction contracts.

The most salient example arose as part of the Law of Convertibility in 1991: a prohibition on indexation of contracts and payments. A valuable tool used by private parties to manage changes in price levels, indexation involves writing into a contract an upward adjustment of nominal payments based on standardised inflation rates. With this law, the government prohibited indexed contracts, including all manners of currency updates, cost variations, and debt restatements. Although the prohibition on indexation was specifically promulgated in tandem with the Law of Convertibility, the prohibition on indexation inexplicably remained even after the Law was scrapped in 2002, and technically continues today.

With inflation safely ensconced in the Argentine financial landscape, the architects of project finance and construction contracts have become creative with legally permissible methods to stem rising costs notwithstanding this prohibition. The most frequently used methods include price escalations and a combination of fixed and variable prices. For example, a three-year lease may provide for a fixed increase in rent each subsequent year, such as US$100 for the first year, US$125 for the second and US$155 for the third. While this may seem like indexation, Argentine courts have confirmed that these price escalations do not fall foul of the law. In addition, investments in construction projects often involve a combination of fixed down payments and subsequent instalments that vary in cost based on the expense of construction materials.

Indeed, because of the prohibition on indexation, gradual inflation is difficult to compensate for in construction contracts except in the manner described above. The next question becomes whether force majeure clauses can be invoked in cases of hyperinflation. While no legal codes exist to that effect, the answer is almost certainly no. In Argentina, force majeure clauses are permissible, but their applicability is limited to situations in which the events are extraordinary and unpredictable. In Argentina's case, hyperinflation is not an extraordinary occurrence; it has happened several times before, and could undoubtedly happen again. As a result, the majority view is that an inflation crisis – even a crisis of hyperinflation – constitutes an expected phenomenon that does not merit the exercise of a force majeure clause. The message is clear: inflation is a foreseeable evil for Argentinians, and prudent parties ought to invoke other measures to manage the risk.

IV SECURITY AND COLLATERAL

Similarly to elsewhere in the world, security interests in Argentina can be obtained through pledges and security assignments, and be ensconced in trusts or tucked into mortgages.

When it comes to pledges, Argentina has a two-tiered system of ordinary and registered pledges. The ordinary pledge functions as one would expect: the debtor physically transfers the pledged property into the possession of the creditor or into the custody of a third party. Unlike the previous Civil Code, which required the creditor to sell the asset in a court-administered auction, disclaiming self-help remedies to foreclose on a pledge, the new Unified Civil and Commercial Code does not require necessarily a court-ordered foreclosure procedure, since it enables the parties to agree on the creditor keeping the pledged property if a default occurs, as well as on a private sale of the asset. If nothing is specified in the contract, the creditor can choose from any of the possibilities foreseen in the Code.

When a security interest takes the form of a registered pledge, the debtor retains possession of the property instead of transferring it to the creditor. As Law 12,962 describes, that pledge must be filed with the Registry of Pledges, through either a public deed or an authenticated private instrument, before the pledge becomes enforceable against third parties. When that act of registration occurs, the creditor must also decide whether the pledge will be 'fixed' or 'floating'. If the pledge is fixed, then the registration only encompasses the particular asset and nothing more. In contrast, if the pledge is floating, the creditor captures any changes the asset may undergo while it is registered and any additional assets that derive from those changes. The choice between a fixed and registered pledge has another consequence: jurisdiction. If a fixed pledge is chosen, the assets fall under the jurisdiction of the Registry of Pledges where they are located. In contract, floating pledges fall under the jurisdictional wing of the Registry of Pledges located where the debtor is domiciled.

Trusts, security assignments, and mortgages round out the various forms of security interests. Crucially, when property is placed in a trust, the secured assets are protected from the prying fingers of a debtor's other creditors. Argentina expressly regulated trusts in 1995 with the enactment of Trust Law 24,441, imbuing trusts with one key quality: limited liability for the trustee. Moreover, the Trust Law also establishes that trust property will be treated separately from property belonging to either the trustee or trustor. Largely because of these two protections, trusts have become a popular component of project finance transactions in Argentina since the Trust Law was enacted.

Notwithstanding this, the new Unified Civil and Commercial Code has amended a high percentage of the legislation applicable for international transactions, including the Trust Law. However, the key matters of this law remain unchanged. Security assignments share some characteristics with trusts, but differ in that assigned assets are generally limited to rights or credits. Trusts are free from this limitation, and can encompass most forms of assets, including movable property and real estate. Mortgages, for their part, grant security interests over real estate, ships and aircraft, and usually secure the principal amount plus accrued interest. Created by means of a notarised deed, a mortgage only becomes valid in relation to third parties once it is registered with the Public Real Estate Registry in the jurisdiction in which the property lies.

Indeed, registration is obligatory to ensure the validity of most security interests. Mortgages and registered pledges must be catalogued – and fees paid – which are calculated on the basis of the total value of the secured asset. Certain descriptions must also be included. When registering mortgages, the value of the collateral security must be specified in the deed; if that step is overlooked the entire mortgage risks being invalidated in accordance with Section 2189 of the Unified Civil and Commercial Code. Similarly, the value of the collateral must also be noted when registering a pledge, in addition to information regarding the applicable interest rate and the method of repayment. Finally, when executing a mortgage, notary public fees must of course be paid as well.

V BONDS AND INSURANCE

In accordance with Public Works Law, contractors are required to deposit 1 per cent of the total cost of the project in order to submit their proposal and must maintain their tender within the time limit set in the basis of this tender. Pursuant to such regulation, this deposit may be instrumented by one of the following types: cash, certified check, public debt securities issued by the federal or provincial governments, bank guarantee, surety insurance, or demand note.

Surety insurance may be used both in public and private contracting and can undergo different forms, such as: (1) bid bond that ensures the bidder on a contract will enter into the contract and furnish the required payment and performance bonds if awarded the contract; (2) performance bond that ensures the contract will be completed in accordance with the terms and conditions of the contract; (3) down payment or collection that ensures that the policyholder will use the advance payments received for the material supply; or (4) funds for reparation orders.

VI ENFORCEMENT OF SECURITY AND BANKRUPTCY PROCEEDINGS

The process of foreclosing on a pledge differs depending on whether the pledge is ordinary or registered. As mentioned in Section IV, the new Unified Civil and Commercial Code does not necessarily require a court-ordered foreclosure procedure for ordinary pledges, since it enables the parties to agree that the creditor will keep the pledged property if a default occurs, as well as on a private sale of the asset. If nothing is specified in the contract, the creditor can choose from any of the possibilities foreseen in the Code. Instead, if the pledge is registered, the foreclosure process varies in accordance with whether the secured party is classified as a financial entity under the Financial Entities Law No. 21,626, as decreed by the Central Bank. If the secured party does not fall under the mantle of financial entity, then the lender must pursue a judicial foreclosure proceeding similar to that described below for mortgages. If the lender is a financial entity, then the court's presence is circumscribed.

Mortgages are foreclosed upon through either a summary proceeding in court that ends with the public auction of the property, or a speedier, more simplified process in which the creditor can assume a greater role. In the traditional judicial proceeding, the property is sold to the highest bidder at auction (the lender is permitted to bid on the property as well), as long as the debtor does not offer any successful defences. After the sale, the proceeds are deposited in a bank under court order, and the creditor's claim is satisfied against such proceeds. This traditional foreclosure process can take anywhere from one to two years from start to finish.

If a debtor is insolvent, the procedures differ yet again depending on whether it decides to pursue a judicial reorganisation or a bankruptcy proceeding. The reorganisation procedure can only be instigated by the individual or corporate debtor in question, who must file a petition for relief under the Bankruptcy Law together with evidence of both its inability to satisfy debts – and ability to reorganise. Once this petition has been filed, all claims by unsecured creditors are in effect stayed, although creditors may proceed with claims related to mortgages and pledges if and only if they give notice to the bankruptcy court. That is to say, the creditor will have to request admittance of his or her credit and collateral to the relevant court.

Bankruptcy proceedings, on the other hand, can be commenced either voluntarily by the debtor or involuntarily by his or her creditors. In contrast to the reorganisation process, the debtor is not allowed to manage its own assets; a trustee is appointed as administrator in its place. All creditors – including preferred creditors – must submit evidence of their claims to the debtor's trustee. Certain creditors do retain an advantage, however, when it comes time to distribute the debtor's assets. Creditors with a lien over a particular secured asset are granted a special preference by law, which entitles them to priority over the proceeds from the sale of that asset. In addition, Section 239 of the Bankruptcy Law provides for the subordination of debt, with the result that senior creditors will be paid before subordinated lenders. It is important to note, however, that lenders will not incur liabilities if project assets are foreclosed upon.

VII SOCIO-ENVIRONMENTAL ISSUES

Beyond the litany of usual permits needed for a particular building project, Argentina has one licensing requirement that applies specifically to foreign citizens and companies. That is to say, foreign nationals who wish to acquire land in a 'border security zone' must seek special permission from the National Commission of Security Zones to complete their purchase. Generally speaking, these zones encompass land that lies within 150km of Argentina's borders, or within 50km of the sea. This permission is typically granted within about six months. It is worth noting, however, that local companies controlled by foreign nationals are deemed to be 'foreign companies' for the purposes of this legislation, in contrast to standard corporate legislation. Moreover, this licensing requirement applies even if a foreign company decides to acquire shares in a local company that already holds land in a security zone; if management of the local company shifts into foreign hands, permission from the National Commission of Security Zones must be granted before the transaction can proceed.

With the amendment of the Constitution in 1994, environmental legislation – and sanctions for environmental violations – has increased in tandem. As stated in Section 41 of the Argentine Constitution: 'All inhabitants are entitled to the right to a healthy and balanced environment fit for human development […] and shall have the duty to preserve it.' Furthermore, the Constitution requires that a person or company who damages the environment has the 'obligation to repair it according to law'. If a person believes that his or her environmental rights are being infringed, he or she can file a Section 43 summary proceeding (an amparo) for immediate injunctive relief. Environmental legislation exists not only at the federal level in Argentina, but at the provincial level as well. At the federal level, Congress has the power to set forth minimum standards legislation for the protection of the environment, which is applicable throughout the country. Conversely, the provinces may establish supplementary legislation to these minimum standards either by enacting more stringent regulations or by passing their own environmental regulations in areas in which the federal government has not established such minimum standards.

Certain environmental legislation specifically prescribes criminal penalties for environmental transgressions (e.g., the National Hazardous Wastes Law No. 24,051 and the Buenos Aires Special Wastes Law No. 11,720 hold representatives of companies liable for environmental damages caused by the activities of their companies, to the extent of their participation in the action). Further, some courts have invoked Section 200 of the Criminal Code regarding crimes against public health to sanction people who release hazardous substances into the environment. Otherwise, administrative sanctions, injunctive relief or civil penalties usually accompany environmental offences.

VIII PPP AND OTHER PUBLIC PROCUREMENT METHODS

Public-private partnerships (PPPs) have not been as popular in Argentina as in other Latin American countries in the past decade. However, Law No. 27,328 was enacted in 2016, which establishes the terms and conditions for PPPs, and in February 2017, Decree 118/2017 was enacted, implementing Law 27,328. This legislation governs PPPs in Argentina and was implemented in anticipation of the big flow of investment in infrastructure that is expected in the country in the next few years. This is a positive step because the lack of investment in infrastructure in the country in the past 15 years means that the rules governing investment can be established for the first time with a view to protecting both the interests of the state and the private parties involved. Indeed, during the past months, several projects have been drafted and fields of action identified (e.g., road construction issues), which means that there are likely to be big opportunities for PPP investments in, among others, highways, railways, hospitals, schools and jails.

IX FOREIGN INVESTMENT AND CROSS-BORDER ISSUES

According to the Business Associations General Law No. 19,550, foreign companies may only engage in 'isolated' activities in Argentina if they are not registered in the country. Although an exact definition of isolated is not provided by the law, a project finance transaction would likely not fall under its scope. Thus, in order to perform regular activities in Argentina, the foreign company has to register either a branch or a local subsidiary. If it fails to do so – and carries out 'regular' activities nonetheless – the company assumes the risk that its activities will be unenforceable and its representative held jointly liable. Therefore, it is advisable that project finance transactions be organised locally.

The most convenient forms of legal entities for foreign investors include the stock corporation, limited liability company and the branch. Whereas the first two forms limit the liability of the shareholders with respect to third parties, when the entity is organised as a branch, the foreign parent company can be held liable for its activities. Consequently, project companies are usually organised as a stock corporation, both to limit liability and invoke the favourable tax treatment of corporations.

With the exception of investments in certain sectors, including rural land, energy and broadcasting, foreign investors are granted the same rights under the Argentine Constitution as local investors, and may invest in any economic or productive activity. In terms of taxation, foreign investors are also treated largely the same as locals: they, too, must pay federal, state and municipal taxes, although dividend payments are immune from taxation. But there exists one salient difference: profits from the sale of shares in an Argentine company are not taxed as income if the seller is a non-resident investor.

From 2007 onwards, many foreign exchange restrictions were set concerning the entrance of funds into the country and their transfer abroad. Fortunately, since December 2015 these restrictions, which limited foreign investment in Argentina, have been relaxed by the new government.

X DISPUTE RESOLUTION

Argentine courts do not jealously guard their jurisdictional power. Parties to a contract can choose to submit to the jurisdiction of a foreign court as long as there is a connection to the chosen jurisdiction and the dispute is pecuniary. There is an exception to this openness, however: Argentine courts claim exclusive jurisdiction over debtors domiciled in the country. If the debtor's domicile is abroad, insolvency proceedings in Argentine courts will only touch those assets held in the country.

With regard to the choice of law, contractual parties are generally free to choose which laws will govern their agreements. The major caveat is that foreign law will not be accepted if it flouts Argentine public policy. As a consequence, disputes involving bankruptcy, tax, criminal, and labour laws will be governed by the Argentine public policy laws corresponding to those areas. Specifically, Argentine law shall also govern rights and legal actions related to real estate and movable property located permanently in the country.

Foreign judgments and arbitral awards, for their part, are enforceable in Argentina, either in accordance with international treaties or the Unified Civil and Commercial Code. If a country has signed a treaty with Argentina regarding foreign judgments, those procedures will prevail; if not, the Unified Civil and Commercial Code shall apply in federal court. (Each province has its own rules for enforcement of foreign judgments in its local courts.) Article 517 of the Code sets out several requirements that a foreign judgment must meet in order for it to be enforced in Argentina. The judgment must have been issued by a competent court, as determined by Argentine law; be final and valid in the foreign jurisdiction, and later authenticated according to Argentine law; and cannot conflict with Argentine public policy, or with a prior or contemporaneous judgment in Argentine courts. Finally, the defendant must have undergone due process of law, including a proper summons and a chance to defend itself.

Once all those prerequisites are fulfilled, a number of procedural requirements must also be satisfied before enforcement can occur. The petitioner must file a statement proving that the aforementioned legal requirements are satisfied; all documents in a foreign language must be translated into Spanish by a translator registered in Argentina; a copy of the foreign judgment must be notarised and filed with the appropriate Argentine court; and all pertinent documents must be authenticated by the Argentine consulate located in the foreign court's jurisdiction. Finally, a 3 per cent court tax will have to be paid upon enforcement.

The enforcement of foreign arbitral decisions follows the same framework. As long as both the legal and procedural steps are fulfilled, the foreign arbitral award will be accepted by Argentine courts. If a treaty applies, however, its procedural and substantive requirements take precedence. Notably, Argentina has been bound by the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) since 1988.

XI OUTLOOK AND CONCLUSIONS

This chapter should be taken as a mere outline of the project finance landscape in Argentina. While the legal framework does not differ much from other Latin American countries, decisions regarding investments in public works have been unusually politicised in Argentina in recent times. Argentina's prior governments did not pursue PPPs unless they were to achieve a particular political outcome. This has started to change with the policies that are being implemented by the current government we suggest removing this text (as described in Section VIII).

There is expected to be a boom in project finance investment in the coming years as infrastructure grows, and mining and energy technology advances. Future projects are likely to involve not only the creation of new structures, but also the maintenance of existing structures. As described, the government has taken the required measures to facilitate this, which have led to marked optimism in the business community and many steps are being taken to implement huge infrastructure projects through PPPs. Many positive changes are expected in this new business environment.