Decree No. 1170/2018 (the "Decree") was published on 27 December 2018. In connection with Transfer Pricing ("TP") rules, the Decree regulates the new provisions introduced by Law No. 27,430. The main changes introduced by the Decree are described as follows:
1. Economic Bonding Criteria/Related Parties
The Decree introduced different assumptions regarding economic or functional bonding between taxpayers located in Argentina and abroad. Said assumptions are the same as those set forth by the Federal Tax Authority ("AFIP") in the General Resolution 1122/01.
2. Low or Null Taxation Jurisdictions
According to the new TP rules introduced by Law No. 27,430, the concept of "low or null taxation jurisdiction” refers to jurisdictions where the income tax rate is 60% lower than the rate applicable in Argentina. The Decree established that, the total rates of taxation should be taken into account, in each jurisdiction for corporate income, regardless of the levels of government that have established them.
3. Profit Split Method ("PSM")
The Decree regulates the procedure to apply the PSM in the cases where the parties or the transactions involved, contributed significantly to the creation of intangible assets or where the parties are owners of intangible assets involved in the transactions, as long as there is no better method for assessing the operation as between independent parties.
4. Transactional Net Margin Method ("TNMM")
The Decree establishes that the gain to be compared will be the net profit before financial expenses and income tax, without considering the extraordinary results.
5. Comparable Uncontrolled Price Method ("CUP")
The Decree provides that the CUP method will be considered the most appropriate to value the transactions of goods with a public quotation price.
6. Interquartile Range and Adjustment
In the past, the Argentine TP rules considered that when the value of the median less 5% was lower than the first quartile, the former must be considered and must replace the first quartile. On the other hand, if the value of the median plus 5% was higher than the third quartile, the former must be considered and must replace the third quartile. Therefore, the TP adjustments were performed by calculating the difference between the price, the amount of transactions or the profit margin agreed upon versus the value corresponding to the median plus (or less) 5%, depending on the transaction that is being analyzed. The Decree changed that criteria and establishes that, if the price, the amount of transactions or the profit margin set by the taxpayer is outside the interquartile range, the value of the median will be considered to be the price, the amount of transactions or the profit margin that independent parties have used.
In addition, the Decree regulates that, in the cases of goods or services with public quotation price, the market rank should be calculated considering the minimum and maximum prices or quotations of the day corresponding to the transaction under evaluation. Adjustments to prices or quotes can be made for technical reasons specific to the market. If the price set by the taxpayer is outside the total market range determined by the maximum and minimum, average value between the maximum and minimum will be the price that independent parties have used.
7. Operations with Intermediaries - Remuneration
The Decree provides guidelines to complete the analysis that should be made to demonstrate that the remuneration obtained by the intermediary was agreed following normal market practices between independent parties, according to the provisions set forth in the sixth paragraph of Section 15 of the ITL.
8. Registration of Contracts
The Decree establishes the information that should be recorded in connection with export of goods with a public quotation price, according to the provisions set forth in the seventh paragraph of Section 15 of the ITL.
9. Documentation on International Transactions and Transfer Pricing
Pursuant to the Decree, the AFIP could request, among others, the following documentation:
- Local File or Transfer Pricing Study
- Master File
- Country by Country Report
The filing of a) and b) shall not be enforceable with respect to the taxpayers whose intercompany transactions carried out do not exceed the total amount equivalent to ARS 3,000,000 (USD 79,000) in the fiscal period, or do not exceed the individual amount equivalent to ARS 300,000 (USD 7,900), without prejudice of the duty to preserve the documents, information and evidence that support the intercompany transactions.
It is worth mentioning that the AFIP has not yet issued regulations to comply with most of the new rules.