This case, AFIP v Alfred C Toepfer Internacional, belongs to the first group of three controversies, related to the proper benchmarking of commodity export transactions, which have reached the Federal Supreme Court during the last twelve months.
These three cases involved notices of deficiencies issued by the Argentine Revenue Service (ARS) with regards to fiscal years 1999-2001, but only assessed almost six years later (close to the triggering of the statute bar).
The ARS auditing work on these matters has been the chronological precedent to the
The other two cases involved commodity exporters
The tax claim was substantially similar in these controversies: after the ARS scrutinised all taxpayers’ commodity exports, the revenue authorities only adjusted prices of those whose open market values on the shipment date
To reach this outcome, the ARS sustained that the conduct of the parties should govern, meaning that related-party transactions should be scrutinised in view of unrelated party conducts.
To this extent, the ARS further selected some internal comparables, benchmarking timing conducts, rather than prices, that would allow it to conclude that prices resembled open market values on the shipment date in the non-affiliated context, rather than on contract dates.
However, these conclusions either resulted from the tax authorities’ selection of incomparable transactions or by “cherry picking” a reduced number of related party transactions. No objection at all would be made by the ARS when prices agreed on the contract date were higher that open market values on the shipment date.
In the first case entered for the taxpayer – Oleaginosa Moreno - the Supreme Court confirmed the previous Court of Appeal’s decision that understood that “comparable transactions” selected by the ARS were proved incomparable.
To conclude this much the Court scrutinised the comparability analysis performed by the taxpayer and its consistent and numerous evidence collected during the litigation process; which involved economists, accountant, international trade experts opinions, among others.
In the second controversy entered for the taxpayer – the Toepfer case - the Supreme Court understood that the “cherry picking” mechanism performed by the ARS implied a disguise retroactive application of the
The notices of deficiency that motivated these cases paved the way for the ARS to subsequently pass a law supporting the
The Argentine GAAR establishes that, when
The issues at stake further merited specific action under BEPS action plan 10, by the release of a specific paper on “transfer pricing aspects of cross-border commodity transactions”
In this regard, the OECD draft proposal for the review of the transfer pricing guidelines has not upheld the “sixth method”, but suggests a deemed pricing date – the date of shipment - in two cases: (1) when there is no reliable evidence as to the actual pricing date in the controlled transaction; and (2) when the date agreed is inconsistent with the facts of the case.
The previous case law illustrates how tax authorities may appeal to their own readings of the unrelated-party conducts or facts of the case, being of utmost importance the comparability analysis performed by taxpayers.
Benchmarking should not only be focused on price comparability but also on taxpayers’ conducts, to the extent they predicate as to relevant facts and circumstances of the transactions subject to comparison. OECD BEPS trends demand such a comprehensive approach, a standard that burdens both the taxpayer and the tax authorities as well, in view of the lessons learned from this case.
In collaboration with Cristian E. Rosso Alba, of Rosso Alba, Francia & Asociados, email@example.com.
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