The Argentina Customs Director announced in a November press conference that Customs will continue focusing on customs valuations and transfer pricing issues.
The asphyxiating foreign exchange regulations currently in place in Argentina are seen by Customs as an incentive for importers to artificially increase the import value of goods (since this will result in the transferring abroad of more foreign currency; a practice known as “over-invoicing”) as well as for exporters to artificially reduce the export value of goods (since this will result in some foreign exchange remaining abroad instead of being mandatorily converted into Pesos at an artificially low foreign exchange rate; known as “under-invoicing”).
In the case of foreign multinationals, Customs is paying attention to those transactions between related parties that involve the presence of a related-party intermediary between the Argentine importer and the (related) foreign manufacturer of the goods.
In many of these transactions, Customs argues such intermediary does not have any substance and, thus, does not perform any activity, render any service or add any value that may justify the price differential between each step of the transaction. According to Customs, the whole structure is just a way of over-invoicing imports with the purpose of transferring more foreign currency abroad (or, vice versa, of under-invoicing exports).
This may either be a crime or an administrative infringement, depending on the -capricious- interpretation of the facts by Customs.
To defend its position, the Argentine importer/exporter may submit information about the intermediary such as: (i) its substance (number of employees, sales, assets, etc.); and (ii) the services rendered and risks assumed by the intermediary (e.g., royalty payments to the owner of the IP, administrative and marketing expenses related to the products sold, foreign exchange risks assumed by the intermediary).
This defense requires the filing of financial statements of the intermediary, agreements the intermediary may have with the owner of the IP or with a contract manufacturer in the country of origin, accounting certifications regarding the costs borne by the intermediary with respect to the goods sold to Argentina, and similar documents. In general, in our experience, global treasury offices are not willing to share this information with local Customs authorities, significantly limiting the chances of success of any defense.
A way to mitigate the risks of prosecution by Customs is to sign up to the special procedure set forth by General Resolution 4419 of the Federal Tax Administration. This General Resolution allows for the declaration of provisional import values that will become definitive at the end of each year, after the corresponding transfer pricing adjustments are made. However, due to the amount of information that parties must provide to Customs to qualify for this special regime (in particular, the obligation to provide substantial financial information on the intermediary party), companies have been reluctant to join.