In May 2025, the Federal Appeals Court of Argentina resolved a high-impact tax dispute in the case of Compañía de Transmisión del Mercosur S.A. (case No. 9939/2019). The dispute revolved around an adjustment made by the Federal Public Revenue Administration (AFIP) related to the correct application of transfer pricing (TP) rules in intra-group transactions.
This ruling not only resolved a specific dispute, but also established relevant criteria on how taxpayers must substantiate the reasonableness of the margins and prices declared to the tax authority.
Background and subject matter of the dispute
La Compañía de Transmisión del Mercosur S.A., a company engaged in the transmission of electricity within a multinational group structure, had operations with related parties abroad. The AFIP, upon reviewing its return, determined that the rates agreed upon in these transactions did not reflect the market conditions required by the arm’s length principle, provided for both in Argentine law (Income Tax Law) and in the OECD Guidelines.
The proposed adjustment consisted of increasing taxable income by applying margins considered closer to market values, which generated a significant increase in the tax base and, consequently, in the tax burden.
AFIP’s position
The tax authority argued that the profit margin reported by the company was below the interquartile range obtained from independent comparables, which, in its opinion, evidenced an undervaluation of the transactions. In addition, it questioned the methodology applied by the taxpayer, pointing out that it contained omissions in the comparability adjustments and did not include data contemporary to the tax period audited.
The AFIP also warned of the risk of tax base erosion, given that the transactions were carried out with group entities located in low- or no-tax jurisdictions. In the agency’s view, these circumstances justified the proposed adjustment and required a correction to bring the transactions into line with market conditions.
Defense arguments
For its part, the company argued that the prices applied were supported by specific contractual and operational conditions, derived from long-term agreements and technical obligations specific to the electricity sector. According to the defense, the comparability analysis should have considered factors such as installed capacity, seasonality in demand, and regulatory restrictions, all of which directly affected the margins obtained.
The company also argued that the differences in profitability compared to comparable companies were not indicative of price manipulation, but rather responded to extraordinary economic conditions during the fiscal period under review, which had impacted its profitability.
Criteria and grounds for the ruling
The Court of Appeals partially upheld the AFIP’s position, setting out important guidelines:
- Strict interpretation of the arm’s length principle: The court reaffirmed that transactions between related parties must fall within market parameters, assessed on the basis of reliable comparables and internationally recognized methodologies.
- Reinforced burden of proof for the taxpayer: When the tax authority presents evidence that questions the margins, it is up to the taxpayer to provide solid documentation justifying any deviation from the interquartile range.
- Importance of contemporary documentation: The ruling emphasized that transfer pricing studies must be prepared with data updated to the tax period in question, avoiding reliance on historical information that does not reflect current conditions.
- Comprehensive evaluation of functional analysis: The ruling highlighted the need for reports to include a detailed description of functions, assets, and risks assumed, as well as reasoned adjustments for differences between the taxpayer and comparable companies.
Relevance for the Argentine transfer pricing regime
This case sets an important precedent on several fronts:
- Greater rigor in TP studies: Multinational companies with operations in Argentina will have to adopt robust methodologies, with careful selection of comparables and consistent application of comparability adjustments.
- Strengthening of the AFIP’s position: The ruling confirms that the authority may reject insufficient analyses and propose adjustments based on its own studies, provided that these comply with the standards of the regulations and the OECD Guidelines.
- Preventive approach: Companies should anticipate potential challenges and prepare technical evidence to support the reasonableness of their prices, even in contexts of economic fluctuations or sector-specific particularities.
Practical implications for the energy sector and other regulated industries
Although the case involves the electricity sector, its conclusions can be extrapolated to other regulated industries, such as hydrocarbons, telecommunications, and transportation. In these sectors, tariffs and operating conditions are often subject to technical and regulatory standards that can influence profitability but must also be demonstrated and documented for transfer pricing purposes.
Conclusion
This ruling reaffirms that transfer pricing compliance in Argentina requires a proactive approach, supported by contemporary evidence, rigorous functional analysis, and a well-documented technical defense. Companies that do not have solid TP policies and timely documentation are at high risk of facing significant adjustments, with a direct impact on their tax burden and financial position.
Source: TPCases