The milestone of the 2020 second trimester is certainly the enactment of the new transfer pricing regulations. On 15 May, the Argentine Revenue Service (“ARS”) released the much-awaited general resolution 4717 (“GR 4717”).
Here’s a brief summary of the GR 4717 main aspects:
1. Tested party: GR 4717 provides that the tested party is the Argentine affiliate, as the general rule. However, it does allow testing all affiliated parties – even those residing outside Argentina – when the profit split method is applied.
2. Business restructurings: it regulates in detail the tax consequences of cross-border business restructurings within the affiliated group. The resident party is required to account an arm’s length remuneration when it undertakes new risks or functions, or when it transfers a business line out of the country. In parallel, it is also required to account for an arm’s length loss when the business restructuring results in the need to pay out an indemnification or a similar outlay. For benchmarking purposes, the new GR 4717 requires a consideration of the effects of civil and commercial laws, market standards and domestic case law, whenever applicable. Such economic analysis needs to be included in the annual transfer pricing (“TP”) study. Just to recap, the filing of such study is mandatory every year, as well as the need to file the Country by Country Reporting (“CbCR”) (or to indicate the country where such filing is made by the Multinational Enterprise (“MNE”) group) and the Master File (“MF”).
3. Definition of “intermediaries” subject to special audit: They are defined as any foreign counterpart to the resident affiliated who does not take physical possession of the goods exported from Argentina. To prove substance of such intermediary, a detailed functional analysis is implemented by GR 4717, including the need to provide evidence as to the good standing of the intermediary in its jurisdiction of incorporation; submitting the intermediary’s financial statements, as well as a certification of the margins obtained for such intermediation, which includes a detail of purchases, sales and associated costs. This type of evidence is difficult to obtain but needs to be kept filed by any resident MNE who purchases from or sells to related affiliates in the cross-border context. More cumbersomely, the new regs also require the provision of such evidence when the intermediary in not an affiliate, but it is part of a triangular transaction between related parties.
This evidence should be kept in files by the Argentine affiliate in the event of an ARS audit. Under special circumstances, if the margins obtained by the intermediary go beyond market standards, the ARS may allocate such excess to the Argentine exporter that deals with such intermediary. These issues are a complex topic of current debate, to ensure the evidence is kept while no collateral damage is triggered by the MNE group.
4. Hydrocarbons Exports: GR 4717 provides that such transactions could be benchmarked in view of a “marked product” (i.e. a product whose price is used for setting international prices of the underlying goods); if such standards are commonly used for pricing formulas between unrelated parties. It is not required that the exported goods match the reference values, provided this pricing methodology is proven to be consistent with the arm’s length standard. For example, if the exported goods and the marked product are similar but not identical, a reliable comparability adjustment should be made.
5. Cross-border services between related parties - Benefit Analysis: the transfer pricing analysis should consider compliance with the ordinary and necessary tests; the parties’ conduct (i.e. in compliance with the Organisation of Economic cooperation and Development’s (“OECD’s”) “delineation of the actual transaction”); the contractual terms, as well as a benefit analysis (i.e. it should evidence that the profit or value obtained by the tested party outweighs the price paid for the service). The resolution does not allow deducting any service fee performed in the self-interest of the foreign affiliate or of any other affiliate; nor unrelated to the Argentine party’s business. Cross-border services that are deemed duplicated may not be deducted too, a test that should be analysed in view of the arm’s length standard, on a case-by-case basis.
6. Associated transfer pricing compliance burdens: these burdens are all fully amended, including cumbersome reporting and documentation rules concerning cross-border, unrelated-party transactions with commodities. Related party transactions are also burdensome regulated with new, detailed, transfer pricing studies and associated filing forms (F. 2668). A special Country by Country (“CbC”) filing is required from any local party that is a member of an MNE group. In addition, the MF should be filed mandatorily, within twelve months after closing the financial statements of the Argentine affiliate.
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