Deduction of intra group services charged from outside of Argentina is subject to a high level of scrutiny by authorities, and again, the "form vs susbtance" issue plays a key role.
The following risk-assessment exercise helps estimate the likelihood -from 0 to 100- of a successful deduction of intra group charges received for corporate income tax purposes.
Think about a situation close to you and grade each item from 0 to 10 (0 is total lack of compliance and 10 is fully compliant) and then sum-up all the individual points.
1. Invoices for the services received are issued to the name of the domestic taxpayer contain explicit references to the services rendered and are duly registered in the local accounting and tax records.
2. Compliance with payment requirements required by Argentine Central Bank and IRS regulations (e.g., foreign exchange payment protocols, withholding tax, affidavit signed and sealed by the relevant Treaty competent authority, VAT on imports of services, etc.).
3. Services Agreements (and further amendments) signed in presence of a notary public (on or before its effective date) and apostilled (if signed outside of Argentina), translated to Spanish by a Certified translator and legalized before the Argentine Public Translator Council containing description of services, compensation and further details.
4. Technology transfer agreements registration with the Argentine Patent & Trademark Office (INPI) in cases of core industry services (e.g., those considered Cost of Goods Sold). Add 10 points to your score card if not Technology transfer agreement.
5. Cost sharing agreements allocations not based on pro rata distributions. Add 10 points to your score card if not Cost sharing agreement.
6. A hard copy folder for each service rendered containing at least the following:
Identification (name and position) of the persons involved.
Date of beginning and ending of the service.
Place of performance.
Time incurred by every person involved.
Detailed and complete report for every service provided with date, stamp and signature of a representative of the foreign entity.
Copies of letters, e-mails and minutes of conferences calls or meetings.
All the documentation, work files and other information that were used or prepared with the purpose of rendering the services described in the Agreement.
7. Compliance with transfer pricing documentation and information requirements:
In particular: Form 742 (six-month period) / Form 743 (annual) / Transfer Pricing Report certified by an independent public accountant and legalized before the Accountants Council / Financial Statements / Transfer Pricing Study using Argentine taxpayer as tested party / Further documentation to sustain transfer pricing policy. Add 10 points to your score card if service provider is not related, deemed related or located in low or nil tax jurisdiction.
8. Detailed list and documentation of refundable expenses: Travel tickets / Hotel expenses / Other accommodation expenses / Mailing expenses / Other refundable expenses.
9. Argentine taxpayer Board of Directors records or equivalent containing the discussion on benefits and approval of Services Agreements and actual services received.
10. Pray (hope it helps!)
What is your total score?
The following score card considers the context of an audit in progress (i.e., it does not evaluate the likelihood of being audited) and high professional standards at the taxpayer defense level:
90-100: Remote risk of deduction related assessment and high chances to succeed in final Court decision
70-89: Possible risk of deduction related assessment and high to medium chances to succeed in final Court decision
50-60: Possible risk of deduction related assessment and medium to low chances to succeed in final Court decision
30-49: Probable risk of deduction related assessment and medium to low chances to succeed in final Court decision
10-29: Probable risk of deduction related assessment and low chances to succeed in final Court decision
0-9: Danger is knocking on the door!
So, what are the chances of taking the deduction in the specific situation you are evaluating? If the possibilities are low, bad news in this case could be worst (e.g., not even partial amounts could be written off and penalties, interest and litigation costs would apply) but also potentially not that bad (e.g., withholding tax paid could be offsetable against the corporate income tax liability under certain circumstances).
The question is whether the price to pay to mitigate the risk justifies the greater costs of a potential challenge.
All posts will be appreciated, as well as comments by phone at +5411 4776 8200, by email at daniel@enterpricing.com or at http://www.enterpricing.net/contactus.htm.
Daniel Rybnik, Partner, EnterPricing
www.enterpricing.com
