EL CRONISTA: Undoubtedly, the Argentine economy runs on two currencies: while we sell, buy, get paid and pay in Argentine pesos, we all try to save in US dollars.
For capitalization purposes, gains should be derived from fungible or interchangeable assets that do not lose market value over time. In this context, any salary in Argentine pesos is constantly hit by inflation, as shown by the CPI measured and updated by INDEC, while any payment in US dollars or foreign currencies is stable and strong, and can be set aside for savings.
Even though we are undergoing a clear process of selective reactivation (reactiflation) and we have left stagflation behind, we are faced with a ruthless struggle in the labor market: how to attract and then retain the best talent.
Now a revolution is taking place, emerging from the extensive use of exponential technologies at every possible activity or sector doing business in the global market through IT talents.
Under Argentina’s Civil and Commercial Code, foreign currency, such as US dollars or euros, is defined under Article 765, and is not legal tender (which it was during the Convertibility Plan). Foreign currency is included in the so- called notion of “Payment-In-Kind”.
In addition, under the Employment Contract Act (Ley de Contrato de Trabajo) Payment-In-Kind may account for 20% of salary (Sections 105 and 107). In other words, salary may be paid in foreign currency up to 20%, as provided by the law.
Given the currency restrictions in place, foreign currencies cannot be freely and unlimitedly purchased, and if a salary is paid in foreign currency, it must be converted at the official exchange rate.
However, leading companies and many startups decide to take up the risk by exceeding this limit, and paying all tax and social security liabilities, and converting US dollars into pesos for this purpose. In other words, salaries may be paid in legal tender, i.e. Argentine pesos, and in US dollars or euros, i.e. payment in kind, with the relevant taxes and social security contributions.
In any case, the risks are limited: the law enforcement authority is aware that these businesses are successful and pose cutting-edge challenges, create jobs and produce goods and services, thus promoting economic growth. That is precisely why they do not observe every restriction.
Fines may amount to a portion of 30% of the Minimum Living Wage for social security contributions and taxes, liabilities are duly met and timely paid after currency conversion.
When a company pays salaries both in Argentine pesos and in US dollars, the attempt to compel it to change its pay structure may lead to business shutdown, which would be a deadly sin under the current circumstances that the Argentine economy is undergoing.
Another important issue to take into account is formalities and requirements under the Employment Contract Act, whereby payment in cash in US dollars should be requested in writing by Employees, to which the Employer should reply by paying in cash with foreign currency legally purchased.
Another interesting case is that of Expats, who usually have a complex system of compensation, whereby they receive a portion of their salary in legal tender in Argentina and another portion in a foreign country based on the regional functions they perform, and other benefits in the country where the Company headquarters are located.
Although cases involving different applicable laws are governed by the principle of lex loci executionis, i.e. the law of the place of contract performance, each case has its own peculiarities, and there may be employees whose salaries are paid in countries where there are not foreign currency restrictions in place, unlike Argentina.
For taxpayers, based on the principle of worldwide income, taxes and social security contributions should be paid in the place of residence and performance of the main part of the contract. There are as many exceptions to these guidelines as there are countries involved; it is important to keep in mind whether or not they have reached totalization agreements between them.
Typically, executives and senior staff enter into different foreign currency
payment agreements, based on their targets and the framework within which
they do their job, and the reforms or changes that they must introduce in the
production fabric of their organization.
The economic circumstances of our two-currency system caused by the lost trust in the value of the Argentine Peso and a high inflation rate, have led to the payment in foreign currency in an attempt to find talent retention strategies for new hires who are qualified and suitable for the job. In short, payment in foreign currency today also applies to regular employees under collective bargaining agreements.
For the National Government and its officers at the Ministry of Economy, restoring trust in our legal tender is a challenge that will be the result of a plan for development, recovery, and restructuring, which is still unknown.