Tax Reform: Amendments to Regulation of Income Tax Law

Please find below a brief summary of the main matters regarding transfer pricing provisions, included in Decree No. 1170/2018, published in the Official Gazette on December 27, 2018 (the “Decree”), which modified the previous text of the regulatory decree of the the Income Tax Law (the “LIG”).

“Related parties”

The Decree includes a wide definition of the situations in which “related parties” are deemed to exist, which were already set forth in Annex I of General Resolution (AFIP) No. 3572/2013.

Transfer pricing methods

The Decree describes the methods that were already mentioned in the previous text of the regulatory decree (comparable uncontrolled price, resale price, cost plus, profit split and transactional net margin) and includes the possibility of using other methods when the implementation of the abovementioned methods is unsuitable, if they represent a better option and the taxpayer counts on adequate supporting documentation. The most appropriate method is the one that best reflects the economic reality of the transaction, and the taxpayer is obliged to document the comparability analysis.

Comparability analysis 

The Decree describes the comparability factors already mentioned in the previous text of the regulatory decree, and indicates the criteria that should be observed for the purpose of the comparability analysis, among others: (i) transactions must be tested separately, unless a joint analysis is more appropriate; (ii) taking into consideration if any of the involved parties is owner or licensor of a trademark, patent or other intangible; (iii) observing the existence of complementary services, if any; (iv) priority to internal comparable, if any; etc. In addition, the regulation establishes how the comparable factors should be selected in a similar way as under the previous text of the regulatory decree.

Establishment of the range or market’s magnitude

The Decree reiterates that the price or the profit margin is deemed to be arm’s length if it is within the interquartile range. The previous text of the decree provided that if that were not the case, the median value should be considered, increased or decreased by 5%, while the amended regulation eliminates such reference and only establishes that it will be the median value.

In addition, the Decree sets forth that in the case of assets or services with quoted prices, the one arising from the minimum and maximum price or quote of the day in which the relevant transaction took place must be considered as market range. If the price used by the taxpayer is beyond such total market range, the average between the minimum and maximum value will be arm’s length.

Transactions with international intermediaries

For the purpose of evaluating import and export operations with an international intermediary (sixth paragraph of section 15 of the LIG ), the taxpayer must prove that the intermediary’s fee is arm’s length. If the fee exceeds the one that non-related parties have agreed on, such excess must be deemed as a higher Argentine-source of income of the local taxpayer.

Possibility of excluding the sixth method

The regulations mentioned above (sixth paragraph of section 15 of LIG) are not applicable if the taxpayer duly evidences that the conditions therein required are not complied with. This means that such regulations are not applicable if the international intermediary and the local taxpayer or if the importer/exporter and the local taxpayer are not related parties.

Registration of agreements

Export operations of quoted value assets (seventh paragraph of section 15 of the LIG), as well as export operations with international intermediaries which are not included in said seventh paragraph, must be registered with the Argentine Tax Authority (the “AFIP” after its acronym in Spanish) by the taxpayer, who must provide information regarding the relevant characteristics of the agreement.

Documentation regarding international transactions

The AFIP may request the filing of annual tax returns for informational purposes (please note that AFIP General Resolution 4338/2018 eliminated the obligation to file half-yearly tax returns), which include, among others: (a) a local report or transfer pricing report describing all the transactions executed with foreign related parties or with individuals or entities located in a “low tax jurisdiction” or “non-cooperative jurisdiction”; (b) a master report describing the global view of the business of the related international group; and (c) a “country by country” report with information regarding the entities of the related international group.

The Decree clarifies that the filing of the tax returns with the information referred in (a) and (b) abovementioned is not mandatory if all the relevant transactions were invoiced for a total amount which does not exceed ARS 3,000,000 in the relevant fiscal period, or the individually considered transaction does not exceed the amount of ARS 300,000.