Main adverse tax consequences of operating with a LNTJ
Transactions with LNTJs are not deemed at arm's length for transfer pricing purposes. Thus, the burden of proof that the transaction is arm's length lies with the taxpayer and not the FTA.
Amounts due to an LNTJ in consideration of transactions that trigger Argentine source income are deductible by the Argentine payor when the amounts are paid.
Transactions with an LNTJ must be declared to the FTA under certain circumstances, according to General Resolution No. 5306/2022, through which the FTA established a new Complementary Information Regime for International Transactions.
In addition, the Tax Procedural Law sets forth a presumption by which funds sent to Argentina from LNTJs are considered an "unjustified increase" on the net worth of the Argentine recipient of such funds. The amount received plus 10% of such amount would be considered subject to 35% Argentine income tax and 21% value-added tax, as it may correspond. This presumption does not apply if it can be demonstrated that: (i) such amounts arise from activities effectively performed by the Argentine recipient of such funds or by a third party in such LNTJ; or (ii) such funds were previously declared for tax purposes in Argentina.
Therefore, all funding (intercompany loans; capital contributions, etc.) provided by LNTJs could be deemed by the FTA as an "unjustified increase" on the net worth of the local company subject to the taxation mentioned above. Although the local company would be entitled to file evidence demonstrating the origin of the funds providing grounds to reject any tax claim, in practice, the FTA often adopts an aggressive position, and this kind of tax claim could end up in judiciary litigation.
Federal Tax Court precedent in GeoPark Argentina Limited case ratified by the Chamber of Appeals
In the case of GeoPark Argentina Limited, the FTA applied the adverse tax implications listed above based on the following: (i) the funds received by GeoPark Argentina Limited came from GeoPark Holdings Limited, a legal entity domiciled in an LNTJ (Bermuda); and (ii) GeoPark Argentina Limited failed — during the administrative stage — to demonstrate the origin of the funds.
Once GeoPark Argentina Limited appealed the assessment to the Federal Tax Court (FTC), it had the opportunity to submit the evidence and supporting documentation to justify the origin of the funds.
Finally, on 9 November 2022, the FTC concluded that the evidence and supporting documentation filed by GeoPark Argentina Limited were conclusive enough to justify the origin of the funds.
From the analysis of the bank statements and additional documentation, it was evidenced that the funds sent by GeoPark Holdings Limited to GeoPark Argentina Limited were derived from the placement of shares, carried out on the London Stock Exchange, which were acquired by different investors.
Spanish version
The FTA appealed the decision of the FTC and, on 19 October 2023, the Chamber of Appeals ratified the decision of the FTC in favor of GeoPark Argentina Limited.
