Law 27,742: “Bases and Starting Points for the Freedom of the Argentines”

Today, July 8, 2024, the Official Gazette published Law 27,742, also known as the “Bases and Starting Points for the Freedom of the Argentines” (the “Bases Law“). This law was approved by the National Congress on June 27, 2024, and promulgated by Decree 592/2024, which is also published today.

Below, we highlight some of its main points:

Declaration of Public Emergency

The public emergency is declared in administrative, economic, financial and energy matters for a period of one (1) year. This declaration enables the delegation of legislative powers to the National Executive Power (“PEN”) in these matters. The PEN must report to Congress monthly.

State Reform

It empowers the PEN to: (i) modify or eliminate functions of the administrative bodies established by law, as well as reorganize their legal structure, intervene in them or transfer them to the provinces or to C.A.B.A; (ii) intervene in, transform and dispose of state-owned companies and corporations – with exceptions provided by law – as well as (iii) unify, dissolve or liquidate public trust funds. The PEN may not dispose of the dissolution of about thirty organizations including CONICET, ANMAT, INCAA, ENACOM, INCUCAI, UIF, INTI, INTA, SENASA, SMN, National Bank of Genetic Data and all those related to culture, among others. 

Privatizations. Energía Argentina S.A. and Intercargo S.A.U. are declared “subject to privatization”. The privatization/concession scheme includes Agua y Saneamientos Argentinos S.A.; Belgrano Cargas y Logística S.A.; Sociedad Operadora Ferroviaria S.E. (SOFSE) and Corredores Viales S.A. 

Administrative Procedure. An important reform of the Administrative Procedures Law has been implemented, incorporating concepts such as positive silence for administrative authorizations, the specific prohibition of electronic or computer-related de facto actions and extended deadlines for challenging acts.

Additionally, and among other issues: the term to sue the National Administration is extended to 180 business judicial days, after exhausting the administrative route; it is provided that the statute of limitations to claim judicially the nullity of an administrative act (whether such claim comes from the same State or from individuals) will be 10 years (for absolute nullity) or 2 years (for relative nullity); the term to articulate administrative appeals capable of exhausting the administrative route is extended to 30 days, as a minimum; the term to challenge judicially, by direct appeal, an administrative act is unified in 30 business judicial days; the prior payment of administrative fines is eliminated, as a requirement of admissibility of the direct appeal. 

Contracts and Transactional Agreements

The PEN is authorized to renegotiate or terminate public works contracts, public works concessions, and construction or supply of goods and services contracts for reasons of “force majeure,” if they exceed certain amounts, and it is financially or economically more advantageous for the public interest.

Public Works Concessions. Modifications to the Public Works Concession Law 17.520 have been approved to adjust its provisions to the financing needs of such projects. In this regard, among other issues, a private initiative regime is established, the powers of public authority—particularly the unilateral modification power of the state—are limited, the application of regulations that limit the state’s liability in case of early termination for reasons of public interest is excluded, the requirements for the assignment of contracts are regulated, and the possibility of using technical panels or arbitration mechanisms for dispute resolution is provided.

Promotion of Registered Employment. Labor Modernization.

The main modifications introduced to the labor regime establish that: (i) the labor law is no longer applicable to contracts for work, services, agency and those regulated by the Civil and Commercial Code of the Nation; (ii) the presumption of existence of an employment contract for contracts of works, professional services or trades is excluded, when corresponding receipts or invoices are issued, extending this lack of presumption to social security; (iii) the figure of fraudulent interposition and the consideration of the user company as a direct employer is eliminated; (iv) the trial period is extended to 6 months, with the possibility of extending it up to 8 months in companies with between 6 and 100 workers, and up to 1 year in companies with between 1 and 5 workers; (v) companies can withhold payments to the supplier to pay what is owed to the supplier’s employees and to social security agencies; (vi) active participation in blockades or takeovers of establishments, or causing damage to persons or property of the company or third parties, is now an objective cause of termination of the employment contract; (vii) in case of discriminatory dismissal, an aggravated compensation of 50% of the severance pay is established, which may rise to 100% in severe cases. The burden of proof of  discriminatory conduct lies with the claimant; (viii) the substitution of the severance pay by a fund or system of labor cessation is allowed, as provided by the regulation and by collective labor agreement; (ix) independent workers can have up to 3 independent collaborators to carry out a productive venture, under a special unified regime based on the autonomous relationship, without dependence between them or with those who contract their services or works; (x) The employment relationship is considered registered when any of the parties have registered it and (xi) Several norms are repealed, including those related to aggravated indemnities for lack or deficient labor registration, presumption of employer’s reckless conduct for non-payment of severance pay without cause, fines and procedures for non-payment of social security and tax concepts, prohibition of temporary service companies for agricultural work, and aggravated indemnities for lack of labor registration or when the worker must initiate legal actions to receive severance pay.

Hydrocarbons

With respect to the current Hydrocarbons Law (“HL”), the following modifications are established:

• The activities of processing and storage of hydrocarbons are incorporated into the activities covered by the LH, for which the National Executive Power (PEN) or provincial authorities, as applicable, may grant authorizations. Additionally, the current concession system for hydrocarbon transport is replaced with an authorization system.

• It is established that the international trade of hydrocarbons will be free, in accordance with the terms and conditions established by the PEN.

• It is provided that the permit holders, concessionaires, refiners and/or marketers may freely export hydrocarbons and/or their derivatives, subject to the non-objection of the Energy Secretariat. The effective exercise of this right will be subject to the regulation issued by the PEN, which among other aspects must consider: (i) the usual requirements related to the access of technically proven resources; and (ii) that the eventual objection of the Energy Secretariat may only be formulated within thirty (30) days of being informed of the exports to be carried out, and must be based on technical or economic reasons that affect the security of supply.

• It is determined that, for new concessions, the royalties to be paid to the relevant regulatory authority must be offered by the concessionaire in the bidding process and must be considered, among other terms, when granting the concession.

• Other modifications: (i) it provides that the request for subdivision of the area for the conversion of conventional concession to unconventional concession will only be available until December 31, 2028 and its term will only be 35 years, without extensions; (ii) it establishes that for new concessions, the national or provincial executive power, as appropriate, when defining the bidding terms and conditions, may determine other terms of up to ten (10) years more than those provided in the Hydrocarbons Law, in a reasoned and motivated way; (iii) it states that the holders of projects and/or facilities for conditioning, separation, fractionation, liquefaction and/or any other industrialization process of hydrocarbons may request an authorization, not subject to term, to transport hydrocarbons and/or their derivatives to their industrialization facilities and from them to the centers and/or facilities of subsequent industrialization or commercialization processes; (iv) it establishes that the authorized to process hydrocarbons must process hydrocarbons from third parties up to a maximum set; and (v) provides that the value of the canon will be determined by reference to the price of crude oil barrel instead of a fixed amount.

Gas Law. Modifications to the Natural Gas Law N° 24,076 are included, mainly with respect to, among others, (i) the flexibility of natural gas exportation, (ii) a special regime for firm authorizations of liquefied natural gas exports, (iii) authorization for natural gas storage to ensure uninterrupted service and (iv) extending to 20 years the extension of the transportation license.

Incentive Regime for Large Investments (“RIGI”)

To promote long-term productive investment projects in Argentina, the Incentive Regime for Large Investments (“RIGI”) has been established, offering a series of tax, customs, and exchange incentives. Under this regime, federal tax burdens are reduced, exchange regulations and restrictions are eliminated, stability of rules is guaranteed for 30 years from the date of adherence to RIGI, and direct access to international arbitration is permitted in cases of impact.

Beneficiaries are “Single Project Vehicles” (VPU) holding one or more stages of a project solely for investment and development purposes in specific sectors (e.g., forestry, tourism, infrastructure, mining, technology, metallurgy, energy, oil, and gas) that adhere to RIGI and meet its requirements. The opportunity to join RIGI extends for two years from the effective date of Law 27,742 (from July 8, 2024), with a potential extension of one additional year at the discretion of the PEN.

Applications to join RIGI must include, among other matters, an investment plan specifying the “Total Investment Amount” (TIA) and its schedule. The total investment in eligible assets must equal or exceed the “Minimum Investment Amount” (MIA), which will be set by regulation and vary between USD 200,000,000 and USD 900,000,000 depending on sector, subsector, and/or production stage. The VPU must fulfill 100% of the MIA within a reasonable timeframe proposed in their application, with 40% due within two years from joining RIGI.

Additionally, the project must have a long-term maturity, verified under RIGI as evidenced by the net present value of expected net cash flows (excluding investments) not exceeding 30% of the net present value of planned capital investments during a three-year period from RIGI adherence.

For purposes of RIGI, “Large Investments” are projects involving sufficient investment in eligible assets to reach the MIA, specifically for acquiring, producing, constructing, and/or developing assets dedicated to RIGI sectors, excluding financial assets and inventory. Investments made from the effective date of RIGI, and even before admission to the regime, can count towards fulfilling the MIA.

In addition to VPUs, providers of goods and services meeting certain requirements can register under RIGI solely for importing duty-exempt merchandise for supply to adhering VPUs.

RIGI also provides a special regime (with additional requirements and incentives) for VPUs holding projects qualifying as Long-Term Strategic Exports.

Final requirements for Project admission will be regulated by the PEN and the implementing authority in RIGI regulations.

Incentives include a reduced 25% Income Tax rate, accelerated depreciation of capital investments, carryover of accumulated losses, among other tax incentives, exemptions from import and export duties, deductions for interest and exchange rate differences, exemptions from certain currency availability restrictions, and the stability of tax, customs, and exchange regulations for 30 years from adherence. This ensures acquired rights against changes to the regime for 30 years from adherence, while still allowing access to potentially more favorable treatment under the general regime.

Disputes regarding compliance with incentives, stability, and applicable regime by the Administration can be resolved through direct access to international arbitration.

This is a general comment and in no way presupposes legal advice or opinion. If required, please contact our professionals.