Rules on the Formation of External Assets by Residents (Communication A 5126)

2010 - YEAR OF THE BICENTENNIAL OF THE MAY REVOLUTION

COMMUNICATION “A” 5126
21/09/2010

TO THE FINANCIAL INSTITUTIONS,
TO THE EXCHANGE HOUSES, AGENCIES AND OFFICES:

Ref.: Circular
CAMEX 1 - 663

Rules on the formation of external assets by residents.

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We address you in order to inform you that it has been provided, with effect from 22.09.2010 inclusive, to replace the following points of the annex to Communication “A” 5085 of 7.06.2010:

i. Point 3.1., which is replaced by the following:

"3.1. The purchases of foreign currency made until 28.02.2011 by legal persons resident in the country that are not entities authorized to operate in foreign exchange, provided that the following conditions are met:”

ii. Point 4.1., which is replaced by the following:

"4.1. The purchases by companies resident in the country of foreign currency without limit of amount made until 28.02.2011, for the realization of direct investments abroad in productive activities of non-financial goods and services, provided that the following conditions are met:”

iii. Point 5.2., which is replaced by the following:

"5.2. For purchases of banknotes in foreign currency and of foreign currency for the constitution of portfolio investments abroad, which in the calendar month together are greater than the equivalent of twenty thousand United States dollars (US$ 20,000) in all the entities authorized to operate in foreign exchange, the sale must be made with debit to a demand account opened in financial institutions in the name of the client, or with transfer via MEP in favor of the intervening entity of the funds from demand accounts of the client opened in a financial institution, or with payment by check from the client's own account”.

iv. Point 5.3., which is replaced by the following:

"5.3. For the purposes of computing the limits mentioned at the date of realization of a new operation, for purchases in foreign currencies other than the United States dollar, the pesos settled for each operation shall be computed at the reference exchange rate of the banking business day immediately prior to the one on which each operation was made.”

The updated text of the rules on the formation of external assets by residents that are not entities authorized to operate in foreign exchange is attached, incorporating the modifications provided in this communication and those made known by Communication “A” 5104 of 23.07.2010.

We greet you very attentively.

CENTRAL BANK OF THE ARGENTINE REPUBLIC

Jorge L. Rodríguez
Principal Manager of
Foreign and Exchange

Juan I. Basco
Deputy General Manager of Operations

ANNEX

B.C.R.A.
Annex to
Com. “A”
5126

ANNEX

Index

Foreign Trade and Exchange Rules

1. Exchange rules for access to the local foreign exchange market by residents for the formation of external assets.................................................................. 2

2. Purchase of foreign currency for its application to specific destinations in local assets.......................................................................................................... 2

3. Purchase of foreign currency for the formation of external assets for its subsequent application to specific destinations............................................................................ 4

4. Rules for access to the local foreign exchange market for the formation of external assets by residents, without the obligation of a specific subsequent application. ................................................................................................................ 7

5. Other requirements and rules of application for access to the foreign exchange market for the formation of external assets by residents............................................. 9

Foreign Trade and Exchange Rules

1. Exchange rules for access to the local foreign exchange market by residents for the formation of external assets.

Natural and legal persons resident, estates and other universals constituted in the country and local governments may access the local foreign exchange market to form external assets when the conditions established for each case in this rule are met.

Cases that do not fall within the established conditions must have the prior consent of the Central Bank before the entity grants the client access to the local foreign exchange market.

2. Purchase of foreign currency for its application to specific destinations in local assets.

Residents shall have access to the local foreign exchange market for the purchase of external assets for their application to a specific destination in local assets, when it involves the following operations:

2.1. Purchases of foreign currency made by natural and legal persons resident, estates and other universals constituted in the country without limit of amount, which are destined on the settlement date of the exchange operation to integrate the primary subscription in foreign currency of public securities issued by the National Government.

2.2. Purchases of banknotes in foreign currency made by local governments without limit of amount for their deposit in local accounts of financial institutions under the conditions established for the disbursements of loans granted by International Organizations. The funds thus constituted, plus their interest net of account expenses, must be settled in the local foreign exchange market at the time of use.

2.3. Purchases of banknotes in foreign currency to deposit in local bank accounts under the concept “Purchases of foreign currency for allocation to investment projects” that are made simultaneously with the entry of funds from the financings provided in Communications “A” 4785 and “A” 4970 and provided that the conditions established therein are met.

2.4. Purchases of banknotes in foreign currency made without a limit on amount by public companies, companies that, even though constituted as private law subjects, are under the control of the National State, and trusts constituted with funds contributed by the national public sector, to the extent that:

2.4.1. The funds used for the purchase of foreign currency correspond to funds contributed by the National Treasury.

2.4.2. The acquired funds are deposited on the date of access to the local foreign exchange market, in local foreign currency accounts opened at the entity processing the transaction.

2.4.3. The local accounts constituted with these funds are destined to guarantee
letters of credit or other types of guarantees issued by the aforementioned entities, to guarantee the payment of Argentine imports of goods.

2.4.4. The funds released from these accounts must be settled through the local
foreign exchange market on the date of their withdrawal.

2.4.5. The entity through which the foreign exchange transaction is processed shall be responsible for
carrying out the monitoring and eventual report to the Central Bank in case of non-compliance with the provisions established in this regulation.

2.5. Purchases of banknotes in foreign currency to be deposited in local bank accounts made by non-financial private sector companies, to the extent that the following conditions are met:

2.5.1. The company records overdue and unpaid debt abroad in respect of securities issued abroad, syndicated financial loans abroad, financial loans granted by foreign banks, and other debts directly or guaranteed by official foreign credit agencies.

2.5.2. On the date of access to the local foreign exchange market, the company has made an offer to refinance its debt to foreign creditors.

2.5.3. The amounts acquired do not exceed the amount of principal and interest services of overdue debt according to the original schedule, without computing accelerations of maturities due to default clauses, nor 75% of the cash payments offered in the refinancing offer.

2.5.4. The funds deposited in local accounts plus their interest, net of expenses and commissions affecting the account, must be re-entered through the local foreign exchange market on the date of cash payment of the offer in the case of acceptance thereof, or within the following 10 business days in case of rejection.

2.5.5. The purchases shall be channeled by the banking entity receiving the deposit, which shall be responsible for monitoring these transactions and the eventual report to the Central Bank in case of non-compliance with the provisions established in this regulation.

2.6. Purchases of banknotes in foreign currency made by mutual investment funds to pay in the country redemptions of shares of clients not covered by the provisions of point 1.b. of Communication “A” 4377 and to the extent that they have brought in foreign currency for such purpose for the same amount.

2.7. Purchases of banknotes in foreign currency made by stockbrokers resident in the country and to the extent that the funds are deposited in their name in local accounts at the same entity, up to the amount of foreign currency income arranged on the same date in respect of repatriations of portfolio investments, when the funds resulting from these transactions are applied within the following 24 business hours from the date of foreign exchange settlement, to cancel purchases of securities issued by non-residents with quotation in the country and abroad, made to clients not covered by the provisions of point 1.b. of Communication “A” 4377

CENTRAL BANK
OF THE ARGENTINE REPUBLIC

in transactions arranged with a prior notice of no more than 72 business hours and settleable in foreign currency in the country.

This exception shall apply to the extent that the funds resulting from the transaction remain deposited in local foreign currency accounts in the name of the seller of the traded securities.

The period for applying the funds to the settlement of securities shall be extended in cases of delays due to causes beyond the buyer of the securities and to the extent that the funds are not used for other purposes, until the causes preventing their application are remedied.

3. Purchase of foreign currency for the formation of external assets for their subsequent application to specific purposes.

Resident legal persons shall have access to the local foreign exchange market to constitute deposits abroad for their subsequent application to specific purposes, in the following cases:

3.1. Purchases of foreign currency made until 28.02.2011 by legal persons resident in the country that are not entities authorized to operate in foreign exchange, to the extent that the following conditions are met:

3.1.1. The funds and their income are applied within thirty (30) calendar days from the date of access to the foreign exchange market to the payment of:

    3.1.1.1. Principal and interest services of financial debts abroad in respect of securities issued abroad, syndicated financial loans abroad, financial loans granted by foreign banks, and other debts directly or guaranteed by official foreign credit agencies.

    3.1.1.2. Debts for Argentine imports of goods.

    3.1.1.3. Profits and dividends.

    3.1.1.4. Argentine direct investments abroad.

3.1.2. The maximum amount of external assets that can be accumulated under the conditions provided in the previous point, including the amount for which access to the foreign exchange market is requested, and the income received from said assets, shall be given by:

    3.1.2.1. Imports of goods: without limit.

    3.1.2.2. Financial debt services: for the maturities of principal and interest abroad occurring in the next three hundred sixty-five (365) calendar days.

    3.1.2.3. Utilities and dividends: the greater amount resulting from comparing: i) the amount paid for this concept to non-residents and ADRs in the previous calendar year, or ii) the accumulated amount pending payment of results of fiscal years with closed annual or quarterly balance sheets

CENTRAL BANK OF THE ARGENTINE REPUBLIC

and audited, that should be applied to payments to non-residents and ADRs.

3.1.2.4. Argentine direct investments abroad: the equivalent in US dollars of 30% of the Net Equity minus the book value of equity interests in companies in the country and abroad and other portfolio investments abroad, which arises from the last closed and audited annual accounting balance sheet, considering the reference exchange rate published by the Central Bank, of the immediately preceding business day of the date of access to the local foreign exchange market.

3.1.3. The funds used for access to the foreign exchange market for the formation of external assets to apply to the payment of utilities and dividends and direct investments abroad, do not have as a source of funding, financial indebtedness with abroad.

For these purposes, it will be understood that this condition is met, when there are no disbursements abroad or income through the foreign exchange market for loans or other financial indebtedness with abroad, excluding disbursements corresponding to loans from International Organizations, in the period of sixty (60) consecutive days before and after the date of access to the foreign exchange market.

3.1.4. On the date of effective application of the funds abroad to the payment of the corresponding concept, the requirements established in the foreign exchange regulations must be met in order to access the foreign exchange market for the payment of the concept for which said assets were formed.

For the purposes of corroborating the application and the classification to the norm, the legal person must appear before the financial entity designated for monitoring, presenting the documentation that corresponds to classify the operation in the regulations in force at the date of application, and make the corresponding records.

3.1.5. In case the acquired foreign currency and its income are not applied to the specific destination within the established term, the corresponding funds must be re-entered into the local foreign exchange market within five (5) business days following the deadline established for their application.

The prior conformity of the Central Bank must be required for the modification of the destination of the accumulated funds, and/or the extension of the term established for the application of the payments for which access to the foreign exchange market had been obtained, and to process operations for amounts greater than those provided when they are destined for the early cancellation of external financial debt under the conditions established in the foreign exchange regulations.

3.1.6. Comply with the following procedure and registration norms:

3.1.6.1. The resident company must designate a local financial entity that will be in charge of monitoring the purchases of foreign currency made and their applications, and will be responsible for informing the Central Bank in cases of non-compliance with the

provisions of this norm. The designation must be communicated by the company to the Subgerencia de Estadísticas Cambiarias de la Gerencia Principal de Exterior y Cambios, by note sent through the designated financial entity. The note must be entered through the Mesa de Entradas of this Central Bank, prior to the execution of the operations.

The designated entity will be responsible for monitoring all operations carried out from the date of presentation of the letter before the Central Bank.

In the case of formation of external assets for the cancellation of debts abroad, the detail of the financial debt abroad must be stated in said note under sworn declaration, which must be validated in the informative regime of Communication “A” 3602 and complementary ones, at the different reference dates whose presentation is due at the date of presentation of the note.

3.1.6.2. The designated financial entity will issue the certifications that may be necessary so that the company can access the foreign exchange market through other entities authorized to operate in foreign exchange.

3.1.6.3. The foreign exchange purchases made based on the provisions herein must be processed under the following concepts:

a. “Portfolio investments abroad for the servicing of debt service maturities with external creditors” (Code 881).

b. “Portfolio investments abroad for the payment of imports” (Code 896).

c. “Portfolio investments abroad for the payment of utilities and dividends” (Code 897).

d. “Portfolio investments abroad for the realization of direct investments abroad” (Code 898).

3.1.6.4. At the time of application of the funds acquired under this regime to the corresponding specific destination, a purchase ticket must be made under the concept of:

a. For the cancellation of debt abroad: “Application of portfolio investments for the cancellation of debts” (Code 475) and a sale ticket for the concept of the debt service being cancelled.

b. For the payment of imports of Argentine goods: a purchase ticket must be made under the concept of “Application of portfolio investments for the payment of imports” (Code 497) and a sale ticket under the concept of cash or deferred payment of imports of goods as applicable.

c. For the payment to non-residents and ADRs for utilities and
dividends: a purchase ticket must be made under the concept of “Application of portfolio investments for the payment of utilities and dividends” (Code 498), and a ticket of sale under the concept of "Profits and dividends paid to abroad".

d. For the making of direct investments abroad, a purchase ticket must be made under the concept of "Application of portfolio investments for the making of direct investments abroad" (Code 499), and a sale ticket under the concept of "Direct investments abroad by residents".

The inflows of funds under the concepts "Application of portfolio investments for the cancellation of debts" (Code 475), "Application of portfolio investments for the payment of imports" (Code 497), "Application of portfolio investments for the payment of profits and dividends" (Code 498), and "Application of portfolio investments for the making of direct investments abroad" (Code 499), as they are technical tickets without movements of funds or, as the case may be, to the extent that they are applied simultaneously to the specific destinations provided for at the time of their constitution, are excepted from the constitution of the deposit established in point 6 of Communication "A" 4359.

4. Rules for access to the local foreign exchange market for the formation of external assets by residents, without the obligation of a specific subsequent application.

Residents in the country may access the local foreign exchange market for the purchase of foreign currency for the formation of external assets, without the obligation of a specific subsequent application, in the following cases:

4.1. Purchases by companies resident in the country of foreign currency without a limit on amount made until 28.02.2011 for the making of direct investments abroad in productive activities of non-financial goods and services, to the extent that the following conditions are met:

4.1.1. The investment does not have financial indebtedness abroad as its source of funding. For these purposes, this condition shall be deemed to be met when no disbursements abroad or inflows through the foreign exchange market for loans or other financial indebtedness abroad are recorded, excluding disbursements of loans from International Organizations, in the period of sixty (60) consecutive days prior to and following the date of access to the foreign exchange market, and they have been reported to the Submanagement of Foreign Exchange Statistics before twenty (20) business days from their access to the foreign exchange market.

4.1.2. The client does not record overdue and unpaid external liabilities at the date of access to the local foreign exchange market, under the terms set forth in this rule.

4.2.
Purchases of banknotes and foreign currency in foreign currency made by trusts constituted with contributions from the national public sector, resident natural persons and legal persons constituted in the country, excluding entities authorized to operate in foreign exchange, for the set of the following concepts: real estate investments abroad, loans granted to non-residents, contributions of direct investments abroad by residents, portfolio investments abroad by natural persons, other investments abroad by residents, portfolio investments abroad by legal persons, purchase for holdings of foreign banknotes in the country and purchase of traveler's checks, and donations; when the following conditions are met:

4.2.1. For the total operated under the indicated concepts, the equivalent of two million United States dollars (US$ 2,000,000) is not exceeded in the calendar month and in the aggregate of the entities authorized to operate in foreign exchange;

4.2.2. The funds purchased are not destined for the purchase in the secondary market of securities and instruments issued by residents or representative of these, or issued by non-residents with trading in the country. For this purpose, prior conformity shall be deemed to be required when said destination is carried out directly or indirectly with a settlement of the purchase of the securities within 20 business days following the date of access to the local foreign exchange market;

4.2.3. When the amount acquired in the aggregate of the entities authorized to operate in foreign exchange exceeds throughout the calendar year the equivalent of two hundred fifty thousand United States dollars (US$ 250,000), the intervening entity must verify that the amounts acquired are compatible with the goods declared for tax purposes as investments in local financial assets and cash holdings, and, as the case may be, the existence of subsequent facts that justify the patrimonial disposal of assets that generated the funds that are applied to the purchase of foreign currency, and/or that the client has income in the calendar year that justifies the holding of the funds used. For these purposes, the entity must at least have the following information in the client's file:

a. For natural persons: a) copy of the last sworn statement of personal assets with the filing date of the expired statement; b) sworn statement by the client regarding the facts subsequent to the reference date of the personal assets statement filed, that justify the disposal of funds for amounts greater than the total declared as assets in the country in financial assets and cash holdings, and/or income in the year that justifies, as the case may be, the availability of funds for amounts greater than said declared holdings, and regarding the client's updated real domicile; c) copy of documentation submitted by the client as support for the sworn statement.

b. For legal persons that are subjects of income tax: copy of the last income tax return with the filing date of the expired statement and of the closed and audited accounting balance sheet corresponding to said tax return, to the extent applicable.

c.
For legal persons that are not subjects of income tax:
closed and audited accounting balance and sworn declaration on the origin of the funds applied to the purchase in the foreign exchange market.

This requirement shall not apply when purchases in the calendar month in the aggregate of the entities authorized to operate in foreign exchange do not exceed the equivalent of five thousand United States dollars (US$ 5.000).

4.2.4. The client's sworn declaration is available stating that they have no overdue and unpaid debts abroad for capital services and interest on debts of any kind.

This requirement shall not apply to purchases of banknotes and traveler's checks for amounts that do not exceed the equivalent of ten thousand United States dollars (US$ 10.000) per calendar month, in the aggregate of the entities authorized to operate in foreign exchange.

For the purposes of the requirements established in this point, it shall be understood that:

i. financial and commercial obligations abroad without maturity shall be considered as overdue debt as of 365 calendar days from the date on which they were incurred;

ii. in the case of debts for imports of goods, those in which 365 calendar days have not elapsed from the date on which, according to the agreed purchase condition, the obligation of delivery of the good from the exporter to the importer is considered fulfilled, whatever the maturity date, shall not be considered as overdue and unpaid operations.

5. Other requirements and applicable rules for access to the foreign exchange market for the formation of external assets of residents.

5.1. Entities authorized to operate in foreign exchange may only process foreign exchange transactions for sales of foreign currency to residents for the constitution of portfolio investments abroad, to the extent that the transfer is destined to an account in the name of the client carrying out the foreign exchange transaction, opened at:

i. banks abroad constituted in OECD countries whose sovereign debt has an international rating not lower than "BBB", or that consolidate balance sheet in the country with a local banking entity, or in

ii. banks abroad of the country of permanent residence of natural persons who have authorization for their stay in the country as "temporary residents" under the terms established in article 23 of the Migration Law No. 25.871, or in

iii. financial institutions that habitually carry out investment banking activities and that are constituted in OECD countries whose sovereign debt has an international rating not lower than "BBB".

The identification of the foreign entity where the account is constituted and the No. of the client's account must be recorded in the corresponding exchange ticket.

5.2. For purchases of banknotes in foreign currency and of foreign currency for the constitution of portfolio investments abroad, which in the aggregate are greater in the calendar month than the equivalent of twenty thousand United States dollars (US$ 20.000) in all the entities authorized to operate in foreign exchange, the sale must be made with debit to a demand account opened at financial entities in the name of the client, or with transfer via MEP in favor of the intervening entity of the funds from demand accounts of the client opened at a financial entity, or with payment by check from the client's own account.

5.3. For the purposes of computing the limits mentioned at the date of carrying out a new transaction, for purchases in foreign currencies other than the United States dollar, the pesos settled for each transaction shall be computed at the reference exchange rate of the banking business day immediately prior to the one on which each transaction was carried out.

5.4. The intervening entities must have the client's sworn declaration stating that with the foreign exchange transaction to be entered into with the entity, the limits established in the regulations for their operations in the aggregate of the entities authorized to operate in foreign exchange are complied with, in the cases that are applicable. In this sworn declaration it must also be stated that at the date of access to the local foreign exchange market, they have complied, where applicable, with the filings with maturities operated prior to 10 business days, of the declaration regimes of: a) external debt of Communication "A" 3602, and b) the Direct Investment Survey established by Communication "A" 4237 and complementary ones.

5.5. Sales of external assets carried out in compliance with the obligation to re-enter funds acquired for a specific destination are exempt from the limit established in article 2 of Resolution No. 365/05 of the Ministry of Economy and Production for the constitution of the deposit established in Decree No. 616/05.

5.6. These rules are independent of those applicable in matters of prevention of money laundering and other illicit activities and the financing of terrorism.