Transfer Pricing in Argentina
Transfer pricing in Argentina has as a regulatory background the tax reform introduced by Law No. 25,063 of December 30, 1998, which introduces some provisions on the matter.
However, it is only with the enactment of Law No. 27430 of 2017, which amends the Income Tax Law, that the transfer pricing regime is covered and deepened and aligned with the new provisions established by the Organization for Economic Cooperation and Development (OECD) on the subject, through its Action 13 of the BEPS Plan (Base and Erosion and Profit Shifting).
Later, in 2018, Decree 1170/2018 is published, which modifies the Income Tax Law Regulations, due to the reforms introduced by the above mentioned law.
Additionally, the Federal Administration of Public Revenues (AFIP) published General Resolution 4717/2020, which contains, among others, provisions related to informative sworn statements, Local Report (Local File), Master File and Country by Country Report (CbC Report).
Transfer Pricing: Definition
Transfer prices are understood to be those prices agreed for transactions between related parties, which are also called intercompany transactions.
The principle governing transfer prices is that of full competition or “arm’s length” principle, which is based on the fact that the prices agreed upon between related parties are at market value, i.e., taking into consideration the prices that would have been agreed upon by independent parties.
Scope of Application of Transfer Pricing in Argentina
According to Article 15 of the Income Tax Law, as amended by Law No. 27430, and Article 2 of General Resolution 47147/2020 of the AFIP, transfer pricing will be applied to transactions carried out with related parties and/or with parties domiciled or located in non-cooperative jurisdictions for the purpose of fiscal transparency, or for low or zero taxation.
With respect to transactions with related parties, the Resolution mentioned above makes it clear that they will be the following:
- Operations with individuals or legal entities, establishments, trusts domiciled or located abroad.
- Transactions carried out by taxpayers resident in Argentina with their permanent establishments abroad, or by such establishments with other establishments of the same owner or with individuals or entities in Argentina or abroad, provided that they are related to the resident of Argentina.
- Other related individuals or entities resident abroad.
Definition of Related Parties in Argentina
The article without number following 15 of the Law, indicates when the linkage will be configured.
This article states that the linkage will be established when a certain subject and another person or entity with whom it carries out operations are subject, directly or indirectly, to the direction or control of the same persons, whether natural or juridical.
Or when these last ones, for reasons of participation in the capital, level of credits, functional influences or other, have the power to guide the decisions of these subjects.
Likewise, Article 11 of the Regulations states that it will be understood that there is a link when some of the following situations occur:
- The company owns all or a majority of the capital of another company.
- Two or more subjects have a subject in common that possesses totally or in a majority manner the capital of both, or that possesses total or majority participation in the capital of one or more subjects and significant influence in one or more subjects or has significant influence in both.
- One subject has the necessary votes to make decisions.
- When directors, officers or managers are held in common by two or more subjects.
- When there is an exclusive agent, distributor or licensee.
- A subject is the provider of a technological property or technical knowledge that is the principal activity of the other.
- The subject that jointly with another participates in an association, transitory union, condominiums, among others without legal personality and has significant influence to influence the price.
- When a subject agrees to other preferential clauses that differ from those stipulated with third parties in similar circumstances.
- A subject participates in a significant way in the establishment of business policies.
- The subject carries out a relevant activity only with another, or its existence is only justified in relation to another.
- A subject provides through mutual or guarantee funds in a substantial manner for the development of the other’s activities.
- One party takes responsibility for the losses of the other party.
- When the address of a subject is given to someone who has a minority interest in the capital.
Transfer Pricing Methods in Argentina
According to the third paragraph of Article 15 of the Law, in order to determine that transfer prices comply with market value, the methods that are most appropriate to the nature of the transaction shall be used.
In turn, paragraph 21.4 of Article 21 of the Regulations indicates which these methods will be, listing the following:
- Comparable Price Method between Independent Parties.
- Resale Price Method between Independent Parties.
- Cost-plus-Profit Method.
- Profit Split Method.
- Net Transaction Margin Method.
- Other Methods.
In the case of the other methods, the standard indicates that they will be used for cases of intangible assets or investments in assets that do not have comparables, provided that the other method chosen represents a better option than any of those listed above.
Transfer Pricing Affidavit in Argentina
Article 21.30 of the Regulations states that taxpayers covered by the transfer pricing rules must file certain informative affidavits, such as Local Report or also called Transfer Pricing Study, Master File and Country by Country Report (Cbc Report).
This report describes the structure of the taxpayer, its activities, strategies, clients, related parties or residents in non-cooperative jurisdictions and its operations, as well as its analysis.
According to Article 44 of Resolution 4717/2020, taxpayers resident in Argentina are obliged to submit this report, provided that:
- The total amount of their transactions with related parties, in a fiscal year, is greater than $30,000,000 pesos.
- Individuals belonging to a Multinational Group that are obliged to file a country-by-country report in any jurisdiction, or a Master Report, when their transactions with related parties exceed the total amount of $3,000,000 pesos or individually $300,000 pesos.
- Taxpayers who carry out transactions with subjects residing in non-cooperative or low or zero tax jurisdictions, when the total amount of such transactions exceeds $3,000,000 pesos or individually $300,000 pesos.
The Transfer Pricing Study or Local Report will be submitted in the form of the F.4501 affidavit through the mechanisms established by AFIP.
This report will indicate the global vision of the business, structure of the multinational group, group activities, risks assumed, assets used, among others.
According to Article 45 of the mentioned Resolution, entities belonging to a multinational group will be obliged to submit it, understanding as such, according to Annex I of General Resolution 4,130, that group that includes two or more entities from different jurisdictions.
Likewise, they shall not be obliged to submit the aforementioned Report when:
- The total income of the group in a consolidated manner does not exceed two billion pesos ($2,000,000,000), in the fiscal year prior to its presentation.
- The operations with related parties do not exceed jointly, in the fiscal period, the amount of three million pesos ($3,000,000) or individually the amount of $300,000 pesos.
Country by Country Report
This report contains information about the Multinational Group, such as the jurisdictions in which each entity of the group operates, financial and tax information, taxes paid, among others.
In accordance with Article 2 of General Resolution No. 4,130/17, only the following reporting entities are required to submit this report:
- The last controlling entity of the Group, which is resident in Argentina.
- An entity called substitute resident in Argentina, which has been designated by the controlling entity for these purposes.
- The member entity of the group resident in the country, when the controlling entity is not bound in its jurisdiction by this report, or when there is a country-by-country reporting agreement with the jurisdiction of the controlling entity, but there is no agreement of competent authorities; or there is a systematic breach of the information exchange agreement.
Reporting parties will be excluded from the obligation when the consolidated income of the multinational group, in the fiscal year prior to the reporting year, is less than € 750.000.000.
Such declaration shall be filed by means of Form 8097 through the AFIP page.
In accordance with Article 47 of Resolution 4717/2020, parties carrying out transactions with related parties or located in countries with low or zero taxation, which in the last two fiscal periods prior to the one reported had been obliged to file their transfer pricing information established by General Resolution 1,122, shall be obliged to file Form 2668.
This form shall state the data of the international operations in the field of transfer pricing that occurred in the period.
Expiration of the declarations
In the case of the Transfer Pricing Study and Form 2668 must be submitted until the sixth month after its closing, according to the last digit of the C.U.I.T.
The Master Report and Country by Country Report must be submitted until the twelfth month after its closing, according to the last digit of the C.U.I.T.
It should be noted that the Transitory Provision of General Resolution 4717/2020 indicated a special deadline for the fiscal periods closed between December 31, 2018 and April 30, 2020, so these must be submitted in June, August and October 2020 depending on the closing date of the period.
Transfer Pricing Documentation in Argentina
The taxpayer must keep the documentation on the operations reached by the transfer pricing regime, even if they are not obliged to make any declaration.
Sanctions for Noncompliance with Transfer Pricing in Argentina
The penalty for failure to file any of the transfer pricing information returns will be, according to Article 38 of the Argentine Tax Code, between $10,000 and $20,000 pesos.
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