The Framework

In June 2018, Argentina’s Federal Administration of Public Revenues (AFIP) introduced a 21 percent value-added tax (VAT) on digital services supplied by non-resident entities. The tax encompasses a wide range of services, including streaming media, software downloads, online advertising, and cloud computing services. Initially, the VAT was collected through a withholding mechanism, where payment processors such as credit card companies were responsible for withholding the tax at the point of payment. However, as of September 1, 2024, this withholding requirement has been discontinued, and the responsibility for VAT compliance now falls directly on the foreign service providers.[1]

Implications for U.S. Technology Companies

The shift in VAT compliance obligations to nonresident service providers imposes additional administrative and financial burdens on U.S. technology companies operating in Argentina. These companies must now navigate Argentina’s tax registration processes, ensure accurate VAT collection, and remit payments to the Argentine tax authorities. Failure to comply can result in penalties and potential legal challenges, complicating market access and operations for U.S. firms.[2]

How China Benefits

By imposing new tax compliance burdens on U.S. digital service providers, Argentina’s policy creates an opportunity for Chinese companies to expand their market share. Many Chinese firms, particularly those with state backing, are smaller or operate through local partnerships, making them less affected by VAT compliance shifts. As U.S. firms face new administrative costs and potential market frictions, Chinese digital platforms can gain a relative advantage, positioning themselves as more accessible and adaptable players in Argentina’s growing digital economy. This shift weakens U.S. dominance in the region while allowing China to strengthen its influence in Latin America’s digital services sector.

Endnotes