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Taxation. From a tax point of view, the OECD recommends the so called Arms Length Principle when dealing with transfer price aspects,

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Introduction

Index 1. Transfer Price 1.1 Introduction 1.2 Concept 1.3 Uses 1.4 Arm's Length Principle 2. Argentine legislation 2.1 Evolution of Norms in Argentina 2.2 Export and Import Operations 2.3 Economic relation and operations subjected to transfer price control 2.4 Transfer Pricing Methods 2.5 Comparability 2.6 Documentation Required 2.7 Transfer Pricing Penalties 3. Mercosur and Argentina 3.1 Evolution of Norms in Argentina 3.2 Income Tax 3.3 Transfer Pricing 3.4 Agreements for Double Taxation Relief 3.5 Off-Shore corporations in Mercosur 3.6 Simplification for small income tax payers on certain taxes 3.7 Conclusion 4. Executive Summary 1.Transfer Pricing 1.1 Introduction A great percentage of the international trade is represented by transactions between related parties, usually multinational corporations that transfer stock or services among their business units, which are located in many different countries. When this business units obey to a common commercial strategy, operations can be plan in order to locate the income source in those fiscal jurisdictions where the tax burden is lower, avoiding this way, that benefits be generated in high income tax countries. The countries that integrate the Organization for Economic Cooperation and Development (OECD) have actively worked in the search of a legal mechanism that would provide a solutions to this phenomenon, with the aim that tax authorities be able to fairly apply their taxes on the income that has been produced in their own fiscal jurisdiction. This has been the origin of many guidelines elaborated by the OECD to establish norms that allow the adjustment of transfer prices between related parties to neutralize the shift of the place where the income was originated. 1 1.2 Concept A transfer is a price set by a taxpayer when selling to, buying from, or sharing resources with a related person. A transfer price is usually contrasted with a market price, which is the price set in the marketplace for transfers of goods and services between unrelated persons. ...read more.

Middle

It also adds that the Tax Administration, in certain circumstances, can also establish the value of the exported goods by taking the price of those goods in the place of origin as reference. Imports The income derived from imports is considered as foreign source income. Nevertheless, it presumes that there is net income of Argentine source for the foreign exporter when the sale price is superior than the open market price of the good in its place of origin plus necessary costs. It also establishes that the Tax Administration, in certain circumstances, can also establish the value of the goods by taking the price of those goods in the place of destination as reference. The article remarks that when it is necessary to apply the open market price in the place of origin/destination, and, for any reasons, it is not public, can't be obtained or there are doubts about its correspondence to analog or identical goods than the one exported/imported, then the provisions provided about transfer prices between related parties should be taken as reference for the determination of the price. Article 8 of the Argentine Income Tax Law 2.3 Economic relation and operations subject to transfer price control The application of the arm's length method proceeds for any type of operation, whatever its purpose is, that takes place between two persons or entities economically related. The situation can imply many different cases, but it is evident that it's not the legal form of the persons/entities what determines the possibility of identifying the source of the income, but the decision-making power of a dominant corporation over its business units. The economic relation is considered to exist when under any form, or by any reason, the control by a party over the other/s can be verified. Operations subjected to transfer price control In Argentina, the application of the arm's length principle and the transfer price methods, is established for transnational operations made between related parties and for transactions with resident parties of jurisdiction of low or null taxation, even when none economic relation can be verified between the parties. ...read more.

Conclusion

related parties, involving grains, oil seeds, other products obtained from the land, hydrocarbons and derivatives, and, in general, goods with public prices in transparent markets. The best method to assess the Argentine-source income shall be the trading value of the good in the market on the date in which the goods are shipped, without considering the price that would have been agreed upon with the international broker. However, if the price agreed upon with the international broker were higher than the effective trading value at the above-mentioned date, the former will be considered as the actual value of the transaction. The method described above shall not apply when the taxpayer effectively proves that the international broker meets all of the following requirements: a) It must have an actual presence in the territory of residence, with a commercial establishment where the business is managed, and meet all the legal requirements in terms of incorporation, registration and filing of financial statements. Assets, risks and functions of the international broker must be in accordance with the volumes traded. b) Its primary activity should not consist of obtaining passive income or brokering in the trading of goods from, or to, Argentina or with other members of the economically related group. c) Its international trade transactions with other members of the same group must not exceed thirty per cent of its total annual transactions. The conclusion of the above is that the transfer pricing methodology contained in Article 15 of the Income Tax Law establishes no order of precedence for the use of the methods, with the exception of the case described in the sixth paragraph of the mentioned article. However, the taxpayer shall have to indicate the reasons why a given method has been chosen and prove that the mechanism chosen is the most appropriate for the transaction made. Article 15 of the Argentine Income Tax Law Transfer Pricing chapter - "International Tax Primer", by Michael McIntyre "Manual de Precios de Transferencia para Argentina", by Cecilia Goldemberg 2. ...read more.

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