In brief, the document states that a robust functional analysis is required, which duly documents the consequences of the pandemic on a taxpayer’s business, its value chain, and risk-taking functions. The unusual results generated by the pandemic that affected business profit must be properly identified, by means of a thorough economic analysis, without being able to invoke the impact of COVID-19 as a mere force majeure cause.

In addition, the document sustains that taxpayers should identify and quantify all extraordinary results linked to the pandemic and use public information available regarding the effects of COVID-19 on the business, industry and transactions subject to analysis.

In principle, and in line with the historical criterion sustained by the Argentine Revenue Service, the document states that multi-year analyses would not be acceptable, because they could lead to distortions of results from pre- and post-pandemic periods. Thus, it recommends using financial information from comparable companies for the same fiscal period under study. Comparable companies with recurring losses would not be considered valid, from the Argentine Revenue Service’s perspective. This issue is always controversial, and historically the Argentine Revenue Service has not been successful before the courts when taxpayers prove that losses are a comparable feature of a duly comparable set. This much is acknowledged by recent regulations, discussed below.

The Argentine Revenue Service also warns that situations, in which losses are attributed to a low-risk or limited-risk distributor because of the pandemic, should be scrutinized. In this scenario, it must be considered whether the positions adopted are coherent with the original functional analysis. Moreover, the document states that the analysis should consider the terms and conditions of any pandemic assistance provided to the taxpayer by the Argentine government.

Also, the Argentine Revenue Service has issued General Resolution 5010, which adds a new rule stating that taxpayers cannot use an entity with operating losses as a comparable for Transfer Pricing purposes, unless the taxpayer: (i) adequately justifies that the losses are a characteristic of the business, due to market circumstances, industry, or other comparability criteria; and (ii) demonstrates that the conditions leading to the losses are not the result of factors affecting comparability.

Notwithstanding the fact that the aforementioned measures provide some helpful guidance for taxpayers on the one hand, the Argentine Revenue Service’s recommendations prove restrictive on the Transfer Pricing economic analysis on the other hand, thus increasing the difficulties to perform the analysis in a context of great economic crisis and uncertainty.

Writer: Cristian Rosso Alba and Juan Marcos Rougés, from Rosso Alba & Rougès
Original: https://wts.com/wts.com/publications/transfer-pricing-newsletter/2021/WTSGlobal_TPNewsletter_3_2021.pdf
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