In May 2025, the Federal Court of Appeals of Argentina resolved a considerable tax case, “Compañía de Transmisión del Mercosur S.A.” (file No. 9939/2019). The dispute concerned an adjustment made by the AFIP (Administración Federal de Ingresos Públicos – Federal Administration of Public Income) regarding the correct application of Transfer Pricing rules in intra-group transactions.
This ruling not only resolved a specific controversy but also established relevant criteria on how taxpayers must support the reasonableness of the margins and prices declared before tax authorities.
Background
Compañía de Transmisión del Mercosur S.A., a company transmitting electrical power within the framework of a multinational group structure, had related-party transactions abroad.The AFIP determined, upon reviewing its tax return, that the rates agreed in these transactions failed to reflect the market conditions required by the Arm’s Length Principle, provided for in both Argentine legislation (Income Tax Law) and the OECD Guidelines.
The proposed adjustment increased 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 contended that the company’s reported profitability margin was below the interquartile range derived from independent comparables, suggesting, in its view, an undervaluation of the operations. Additionally, it questioned the methodology applied by the taxpayer, pointing out omissions in the comparability adjustments and a lack of data updated to the fiscal period audited.
The AFIP also warned about the risk of tax base erosion, since the transactions were carried out with group entities located in tax havens. For the agency, these circumstances supported the proposed adjustment and required a correction to align the transactions with market conditions.
Defense Arguments
In turn, the company argued that the prices applied were supported by specific contractual and operational conditions, derived from long-term agreements and technical obligations inherent to the electricity sector. According to the defense, the comparability analysis had to consider 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 of comparable companies did not reflect mispricing, but rather extraordinary economic conditions in the fiscal period under review, which had impacted their profitability.
Criteria and Grounds for the Ruling
The Court of Appeals partially supported the AFIP’s position, establishing significant guidelines:
- Strict interpretation of the Arm’s Length Principle: The court reaffirmed that related party transactions must be within market parameters, based on reliable comparables and internationally recognized methodologies.
- Reinforced burden of proof for the taxpayer: When the tax authority questions the margins through evidence, the taxpayer must provide solid documentation supporting any deviation from the interquartile range.
- Importance of contemporaneous documentation: The ruling stated that Transfer Pricing studies should rely on up-to-date data relevant to the specific tax period, rather than historical information inconsistent with current circumstances.
- Comprehensive assessment of the functional analysis: 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:
- Stricter TP studies: Multinational companies operating in Argentina must 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 studies as long as they 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 sectoral particularities.
Practical Implications for the Energy Sector and Other Regulated Industries
Although the case is framed within the electricity sector, its conclusions can be extrapolated to other regulated industries, such as hydrocarbons, telecommunications, and transportation. In these sectors, rates and operating conditions are often subject to technical and regulatory standards that may impact profitability. Conversely, they still need to demonstrate and document compliance 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 failing to have solid TP policies and timely documentation could face significant adjustments, with a direct impact on their tax burden and financial position.
Source: TPCases