Jurisprudence strengthening State auditing

September 15, 2021

Through the “Columnistas” website, the director of international taxation of the AFIP, Verónica Grondona, commented on the decision of the Supreme Court in the “Molinos Rio de la Plata” case, since its ruling strengthens the State’s capacity for auditing. This is because the decision provides jurisprudence on the AFIP’s capacity to analyze, audit, and, eventually, question aggressive tax planning as a way to combat tax avoidance.

1. Background of the Case

According to the website, the company Molinos Río de la Plata had incorporated a holding company (conduit company) under Chilean investment platform regulation No. 19,840. This company became the owner of shares of other companies located in Uruguay and Peru, in which Molinos Río de la Plata had been the majority partner up to that moment.

In this way, the companies in Uruguay and Peru stopped remitting their income directly to the Argentine taxpayer, since they began to remit it to the holding company in Chile, which then remitted it to the company in Argentina. According to the provisions of the treaty in force at that time, such dividends could only be taxed in Chile, at source, where the company that distributed them was domiciled. However, they were not subject to Chilean income tax, because the foreign source income of investment platform companies incorporated in Chile was exempted.

With such a movement, it was concluded that the purpose of such planning was to generate a strategy to take advantage of a promotional regime together with an agreement signed to avoid double taxation in order not to pay taxes.

2. Ruling of the case

The Supreme Court considered the facts exposed and decided to rule in favor of “Economic Reality” since, in specific figures, the auditing body must prioritize the economic reality of those involved over the legal forms in which such forms are expressed.

3. Auditing Tools

After reviewing the variables of the case, the Supreme Court strengthened the argumentative tools by adding to the existing jurisprudence to fight the erosion of the tax base made possible by aggressive tax planning.

Among the different tools applied is the increase of the network of agreements to exchange information and, thus, exploit the information coming from the automatic exchange of international information. Thus, the AFIP will henceforth have better tools to identify and prevent tax evasion by Argentine taxpayers.

Source: Cronista 14/09/21