Corporate income tax
Sale and repurchase agreements on Treasury Securities, generally known as repos, generate a capital income which should be reported as the difference between the sale price agreed with the financial institution and the purchase price.
Taxation and withholdings
If the securities acquired in a repo transaction are Letras del Tesoro, the income raised will have the same tax treatment as Letras del Tesoro. In other words, it will be exempt from withholdings and will pay the rate corresponding to each tax schedule (state and regional or supplementary) (see Taxation of Letras del Tesoro).
However, credit institutions and other financial entities who arrange accounts with their clients based on repo transactions of whatever nature, are obliged to deduct 15% of the income earned by the holders of such accounts.
Note, having said this, that such arrangements will be treated not as accounts but as securities deposits providing the following conditions are met:
- 1. They have the nature of securities custody or administration contracts.
- 2. The depositor is also the owner of the securities.
- 3. Transactions go through under market conditions.
- 4. The repurchase term is less than 15 days.
In this case, the income from the financial product based on Treasury Securities, comprising the interest on the repo account and the interest from the time deposit account, is regarded as capital income and subject to the same tax treatment and withholdings as the underlying asset. So, for instance, in a repo arrangement on Letras del Tesoro, the return on the actual transaction will not be liable for withholding tax.