Sustainability and Resource Preservation: Argentina's Law on Investments in Cultivated Forests

Brenda Bocchicchio & Ignacio J. Randle
Estudio Beccar Varela
Buenos Aires, Argentina

Introduction
In March 1999, the President of Argentina issued Decree 133/99, the Law on Investments in Cultivated Forests No. 25,080 (hereinafter the "LICF"). The LICF had been passed in December 1998, and was published in the Official Gazette on January 19, 1999. The LICF constitutes an important step in Argentina's efforts to promote the protection of the environment and conservation of the soil by means of economic incentives to the private sector. The measure is especially significant because Argentina has a surface of 20 million hectares suitable for forestation, of which only 850,000 hectares - representing just 4% of the total surface - are currently forested. The annual forest growth in Argentina is 33 m3 per hectare for conifers and 43 m3 per hectare for eucalypti. Other important facts are that currently only 10% of the Argentine forestry products are exported, and that 90% of the forested land is located in the Mesopotamian region (i.e., the provinces of Misiones, Corrientes and Entre Rios). This article will examine the LICF as an example of the innovative measures Argentina is using to promote sustainable resource consumption.

New Regulations Applicable to Forestry in Argentina
According to the LICF, "implanted or cultivated forests" are those forests obtained by sowing or planting native and/or exotic timber forest species ecologically adapted to the site, mainly for commercial or industrial purposes in lands that, due to its natural conditions, location and aptitude, are suitable for forestation or reforestation and that, at the time the LICF was enacted, were not covered by native trees or permanent or shielding forests. Under the LICF not only new projects, but also existing ones where the production of wood is enlarged, may qualify to benefit from the investment promotion regime. Activities included within the scope of the LICF are forest implantation, maintenance, handling, watering, protection and harvesting, including research and development activities as well as processing of wood, performed both by individuals or legal entities whose purpose is to invest in such activities. The most important criterion of the LICF's legal framework is the one of sustainability of renewable natural resources.

Economic Benefits
The LICF grants a non-refundable benefit for 10 years, consisting of a sole payment, once the planting or pruning are carried out. The amount of this benefit is determined according to the number of hectares forested and varies according to the region and forestry activity to be carried out. Such amount may be increased in the case of native or exotic species of great commercial value.

Tax Benefits
Projects included in this promotion regime shall also enjoy fiscal stability for a period of up to 30 years as from the date of approval of the respective project. The government may extend such period up to a maximum of 50 years, according to the region and cycle of the species to be planted. Fiscal stability means that the framework of this investment regime shall not bear a higher aggregate tax burden than the one existing at the time of the filing, as a consequence of an increase in taxes and rates, whatever their designations are at the national, provincial or municipal level, or the creation of new ones that apply to them. This excludes the Value Added Tax, which, for the purpose of the activities included in this regime, shall apply as regulated in the general tax regime. Notwithstanding this, the "Administración Federal de Ingresos Públicos" (the tax collecting authority, within the Ministry of Economy), shall reimburse the Value Added Tax levied on the final purchase or import of goods, rentals, or rendering of services destined to the forestry investment of the project, no later than 365 days after the date of the respective invoices. In forestry-industrial projects, the above provision shall apply only to the forestry sector.

Individuals or legal entities that carry out investments in capital assets within the LICF regime may choose between two amortization systems for income tax purposes: a) the common regime in force under the Income Tax Act; or b) a special regime whereby investments made in civil works, construction and equipment necessary to supply the infrastructure for the operation may be amortized 60% of the total amount of the infrastructure unit during the fiscal year when it is authorized, and the remaining 40% in equal portions during the following 2 years. Investments made for the purchase of machinery, equipment, vehicles and installations not included as set forth above shall be amortized at the rate of one-third per year, counted from the start-up.

Individuals or legal entities that own forest plantations will be exempted from all taxes on assets in force or to be created which affect the assets that are destined to the forestry projects. Moreover, the increase of the annual value of the growing forest may be taken into account to increase the inventory value, but will have no influence for tax purposes. The implementation of by-laws and the execution of corporate contracts, trust contracts, management regulations, and any other formation instruments and their registration, whatever legal type is adopted for the organization of the project, as well as their amendment or the capital increase and/or issuance and liberalization of stock, shares, dividend certificates, and every other debt or equity document created for the organization of the project approved under the LICF, will be exempted from any national tax applicable to such activities, including stamp tax, both for the issuer and the recipient.

Small Producers
Under the LICF, small producers are those who permanently reside in the land to be forested, using familiar manual labor and whose main income comes from her forestry project. If a producer meets these conditions, she shall be entitled to receive 50% of the financial assistance once the project is approved, and the remaining 50% upon completion of registration of the works, within the terms established for the total regime.

Environmental Concept
In order to be eligible under the LICF, a project must have a neutral or positive environmental impact, otherwise it will not be approved by the enforcement authority. Any project with a surface larger than 100 hectares being sowed per year must submit an environmental impact study, with the view to forecasting the modifications such project will generate in the environment as well as both positive and negative potential impacts of such modifications. An environmental impact study is also required under Annex III of Resolution No.152/2000. This material would help to define, when necessary, mitigation measures for any harmful impact, and establish an environmental safety and control system throughout the project. In those projects with a surface of less than 100 hectares, the relevant governmental authority will issue the report on environmental impact. With regard to fire regulations, it is important to note that all forestry projects applying for the benefits of this regime must comply with all fire prevention requirements as set forth in the LICF. If the investment is intended in places with native forests, the province authorities may recommend that the approval of the project be subject to previous evidence of the sustainability of the project and that there would be no adverse impact on the biodiversity.

Carbon Sinks
Even though no special regime for forests to be used as carbon sinks has been implemented to date by Argentina's Executive Branch, the LICF contemplates those forestations or reforestations that have a sole purpose or that are accessory to a production purpose, such as carbon sinks, by virtue of the commitment undertaken by Argentina within the Framework Convention on Climate Change. Projects that are partially or totally eligible as carbon sinks will be given credits in favor of their owners, to be returned when income from the sale of absorbed carbon is obtained, under the terms and manner to be set forth in the special regime.

Conclusion
The LICF, while being an important step forward for Argentina's forestry sector, is an important measure that shows one of the ways in which the government may set environmental standards and long-term goals as a means to obtain tax breaks and other investment incentives. Moreover, the LICF is also expected to be just the first of many measures to promote the forestry of native and exotic species of high commercial value and to support the new method of small organized forestry investors. In this regard, it is encouraging to see the government become more creative in devising incentives for the private investors to enhance Argentina's environment and engage in sustainable exploitation of renewable natural resources.