The Supreme Court has issued a ruling, in a case involving Volkswagen Argentina SA (VWA), which Contains interesting guidelines regarding the regulations governing transfer pricing; regulations that aim to ensure that, in the case of income tax, international transactions between related companies comply with market conditions, prices and margins. To this end, it provides for a series of methods that, based on comparisons of prices or margins of other companies or operations considered comparable, allow for such compliance to be monitored.
The case was discussing the admissibility of the accounting reclassification, attempted in the comparability analysis by VWA, of an income from debt forgiveness as operating income; income that had been presented as financial in the company’s financial statements. In this context, the court emphasizes, in order to reject the aforementioned reclassification, that, if the taxpayer intends to make accounting or other adjustments to its own information, it has the burden of proving that comparable companies do not present a similar situation; a burden that had not been fulfilled by VWA.
This is an important definition, considering that comparability adjustments, on the evaluated part itself, are recurrent in local transfer pricing analyses; adjustments that respond, among other issues, to the special macroeconomic context that characterizes our country and the dubious quality of the information available regarding comparables.
In addition, The Court holds that VWA should have limited itself, in calculating its own profitability indicator – which is, in fact, what was being analysed – to the results and assets of the 2001 financial year.and not using an average of 3 exercises; a definition that is not of much practical interest today, since the regulations currently in force have expressly incorporated the limitation in question.
However, the reasoning – or at least part of it – provided by the court to justify the decision is not shared; the reasoning consists of maintaining, among other issues, that the taxpayer is perfectly aware of the extraordinary events that influenced the determination of its results, so it can exclude them without having to resort to an average. However, such a question is far from being definitive, especially taking into account that it is based on the premise – which is extremely optimistic – that extraordinary events are easily segregated in the analysis of financial information. In addition, the OECD guidelines on the matter maintain – since their original version of 1995, taken into consideration by the legislator for the establishment of the transfer pricing methodology in 1998 – that the use of information corresponding to several years can improve comparability, without distinguishing – naturally – whether it corresponds to the evaluated part or to the comparable ones (vine paragraphs 1.49, 1.50 et seq.).
In conclusion, the judgment discussed is a clear message for multinationals. Fortunately, transfer pricing analyses require increasing precision and justification in our country.
The author is a professor of the Master’s Degree in Tax Law at the Universidad Austral.
Source: Ambito
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