International Tax Review (ITR): What advice would you give to companies about how to reduce the risk of becoming involved in a dispute with the Argentine tax authorities?
Ana Lucía Ferreyra (ALF) (pictured below):Documentation is the preliminary basis to support the company’s tax position so all transactions agreed upon should be duly documented.
The Argentine tax authorities are formalistic in their appreciation of documentation support. Therefore, documents implementing transactions should follow legal due process and, if that were the case, fulfil all the requirements applicable on documents issued outside the country such as legalisation by apostille – under The Hague Convention of 1961 – or by Argentine consular authorities.
We recommend that companies work closely with advisers to design a tailor-made documentation scheme that fits the company’s business structure.
Tax managers and employees can leave the company while tax contingencies remain.
To correctly identify the reasons that lead the company to assume a specific tax position, it is very important to implement an action tracking system so as to ensure records and knowledge is not lost when tax people leave the company. When a tax audit arises, the most important element to avoid a potential dispute is to find the background of the problem as fast as possible.
Support and review of tax positions assumed
Complex tax issues or transactions may require tax opinions issued by recognised professionals.
These opinions help identify the reasons a tax position was taken and facilitate defence during an audit, but also prevent the application of fines and potential tax crime prosecution.
Opinions may be requested upon structuring a business model, upon execution of a particular transaction, or as the result of periodical internal tax audits or reviews, that is, processes undertaken internally by the companies that might involve interviews and document reviews with regard to specific key areas or taxes.
These periodical internal tax audits and reviews are crucial and very useful to detect potential tax contingencies.
Requests of advance rulings from the tax authorities and/or the competent authority on treaty interpretation can be a useful way to support a specific position in controversial issues.
ITR: What options do Argentine taxpayers have to resolve disputes with the tax authorities other than litigation?
ALF: Unfortunately there are no alternative statutorily ruled options to resolve tax disputes in Argentina.
Notwithstanding this, settlements relating to local tax adjustments at the municipal government level have been seen recently.
At federal government level, during a non-statutory ruled stage called prevista, it is possible to explain legal and tax arguments to convince the tax authorities an adjustment is incorrect.
Although this stage is not technically a settlement, due to the informalities of the procedure, it has certain elements that resemble a negotiation or settlement.
If the tax authorities wish to make an adjustment during an audit the auditors must produce a pre-assessment (prevista) containing a description of the items in the taxpayer’s tax returns being challenged and the amount of the adjustment arrived at.
The prevista is served on the audited taxpayer.
If the taxpayer decides to contradict adjustments made by the inspectors, it may simply inform the tax authorities accordingly, keeping any arguments and evidence sustaining its position for submission once the formal assessment procedure starts, or it could use the arguments and evidence available to force a re-examination of the situation at this early stage.
This segment of the process is rather informal and flexible, with no strict deadlines to comply with and that is the reason why it might have the elements of a negotiation.
This is a very useful and important stage in determining the scope of a tax adjustment and a future tax dispute.
ITR: Are you seeing any trends in the types of dispute cases which the Argentine tax authorities are taking up, and those where they are succeeding in the courts?
ALF: There are always audit trends that give rise to particular types of tax disputes. Trends can focus either on a specific issue or on companies of a specific industry or sector.
Trends of the first type have been the challenge of foreign exchange rate losses realised by Argentine companies during the years following the Argentine devaluation in 2002.
More recently, there was an audit trend related to IP licence agreements and deductions. Following the audit trends, these topics have been and are still the subject of much litigation.
The industry focus has been more common recently. One of the most exposed sectors has been the agribusiness sector.
Tax adjustments and claims against companies in this sector – particularly grain exporters – have been extremely diverse.
Tax claims have been related to VAT credits derived from export transactions; input VAT credits arising in domestic transactions where the tax authorities challenge the identity of the counterparties; suspension and exclusion from the registry of grain traders; transfer pricing adjustments on export of grains.
Another sector highly exposed recently has been the car manufacturing sector. It is difficult to identify specific technical tax reasons for the agribusiness and car manufacturing sectors becoming audit targets. One of the motives behind the audit trend, as explained by the tax authorities, was the profitability of the sectors which was not matched by an increase in their tax obligations.
It is important to mention that the tax authorities are becoming more sophisticated in international tax issues.
They have started challenging international tax issues such as transfer pricing which were very uncommon in the past though in general, they have not been successful in that arena.
The reason for that might be based on the fact that precedents established so far are the result of old audits conducted when the transfer pricing rules were quite recent.
It is expected that the increasing sophistication of the tax authorities will be reflected in the effectiveness of future audits and, eventually, in the result of disputes in the courts.
ITR: What do you think multinationals in Argentina can expect from the Argentine tax authorities in future?
ALF: I expect the tax authorities to strengthen the focus of their audits on treaty benefits.
In the past, they have challenged certain outbound structures through which Argentine residents benefit from preferential treatment granted in tax treaties. The most common approach has been to attack the structures under the domestic general anti-avoidance rule – namely, the economic reality principle.
Some of the concerns relating to outbound structures analysed in the authority's precedents resulted in the termination of the tax treaty with Austria in 2009 and, more recently, the treaty with Chile.
However, the termination of other treaties was justified by different concerns, particularly the Spanish and Swiss treaties.
These concerns relate, in inbound cases, to the granting of treaty benefits to foreign persons presumably not entitled to them.
At least in the case of Spanish structures, there is an audit trend in this regard – evidenced in requests of information – in connection with Spanish holding companies, particularly ETVEs (entidad de tenencia de valores extranjeros) and with regard to the personal assets tax benefit granted under the treaty.I expect this will be an issue the tax authorities will devote their audit resources to in the near future.
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