For the past two years President Macri has been pushing a pro-business agenda and a free-market reform to overhaul South America’s second largest economy. After a successful tax amnesty, announced in May 2016 and running until March 31 2017, in which $116.8 billion in assets were declared, the president is now looking to introduce big reforms in tax, education and labour laws.
“The tax reform is one of the most significant in the last decades,” Horacio Dinice, head of TP at Deloitte in Buenos Aires, told TP Week.
Argentina ranks 117th in the World Bank’s ease of doing business rankings, below countries such as Trinidad and Tobago, Honduras, Guatemala and India. Macri hopes to improve this by making Argentina more competitive for inbound investors. While it is still early days and the draft bill has not yet been made public, advisers expect some transfer pricing-related changes to appear on the president’s agenda in a draft bill.
Among other things, as country-by-country reporting (CbCR) rules come into effect, the administrative burden will be increased for US multinationals as Argentina has yet to sign an automatic exchange of information agreement with the US.
Multinationals with subsidiaries in the US and Argentina will therefore need to file a CbC report in both countries in 2018. This administrative burden and lack of global coordination worries multinationals, said Tomás Smudt, partner at Laiún, Fernández Sabella & Smudt in Buenos Aires.
“If the headquarter of the multinational is based in the US, and that is the jurisdiction where the CbCR is filed – the multinational can choose which jurisdiction to file in as long as they have a subsidiary there, given that Argentina currently does not have an automatic exchange of information agreement with the US, they should also file the CbC report here,” Smudt told TP Week.
Argentina’s fiscal authorities have highlighted that they are working on an agreement to exchange information with the US in order to solve this problem, but as of today there is no applicable agreement, Smudt said.
The ‘sixth method’
Macri’s reforms are also expected to clarify the ‘sixth method’ and limit it to specific situations. This method is often viewed as a variation of the comparable uncontrolled price (CUP) method and must be used for certain products and in certain circumstances, mainly commodities.
“Transactions structured using an intermediate entity under certain circumstances could fall under this new and limited sixth method,” Dinice said. “[That means] not only exports and commodities but also imports and any type of goods.”
The draft bill is expected to incorporate new definitions of related entities subject to transfer pricing rules. Transactions with low-taxation jurisdictions are included under the scope of the TP rules, Dinice said, apart from those with non-cooperative [jurisdictions].
Sweeping reforms
Argentina has also major tax cuts planned, while at the same time planning to lower its deficit, which was 1.9% of GDP in August 2017, according to the World Bank.
“In the short term we have two competing goals: lowering the deficit and cutting taxes,” Minister of Treasury Nicolás Dujovne told a news conference in late October. “In the long term, they probably do not compete because lower taxes would generate less evasion and more government income.”
Argentina has one of the highest tax bills on the continent at 35%, but this will be cut to 25% by 2021. This is intended to level the playing field between Argentina and the rest of South America, where income tax rates range from 22% to 27% for OECD countries. Other areas such as VAT, social security, taxes on debits and credits and excise tax on certain products will also see changes.
