GIZ-CIAT Seminar JUNE 2014 Taxation of Large enterprises Transfer Pricing Specific methods for the control of transfer prices: “Sixth Method” Port of Spain, Trinidad and Tobago 10 - 12 June, 2014

Final recipient Local Exporter International intermediaries Tax havens TRIANGULATION Final recipient Local Exporter DESTINATION MERCHANDISE INVOICING INTERMEDIARY INVOICING International intermediaries Tax havens TAX HAVENS OR COUNTRIES WITHOUT EXCHANGE OF INFORMATION FUNDS FROM JURISDICTIONS WITH FLEXIBLE EXCHANGE RATE Tax Risk Hollowing the national tax base(Under-invoicing) Difficult to be used in countries without information exchange GIZ-CIAT Seminar – JUNE 2014

CHARACTERISTIC OF THE TRADER CHARACTERISTICS OF OPERATIONS TRIANGULATION CHARACTERISTIC OF THE TRADER CHARACTERISTICS OF OPERATIONS Without economic substance Located in tax havens or territories with tax opacity Do not add value to the operation Price agreed months before shipment Agreed Price < Market price at the date of shipment Payments from countries with “flexible exchange rate”. GIZ-CIAT Seminar – JUNE 2014 3

Records on crops yields In some cases, tax losses ECONOMIC CONTEXT INTERNATIONAL MARKET RESULTS OF EXPORTERS High price of Commodities. Records on crops yields Profits below average In some cases, tax losses GIZ-CIAT Seminar – JUNE 2014

Knowing the international market STRATEGY OF CONTROL "SIXTH METHOD" INVESTIGATION Operation of companies Knowing the international market Survey of Information in the argentine company and its associates abroad Compared to international prices of commodities APPLYING “SIXTH METHOD” GIZ-CIAT Seminar – JUNE 2014

CONDITIONS FOR ITS IMPLEMENTATION THE PRICE SHOULD BE ADJUSTED TO: “SIXTH METHOD” CONDITIONS FOR ITS IMPLEMENTATION THE PRICE SHOULD BE ADJUSTED TO: Export of commodities Export triangulated - intervention of international intermediary The broker does not meet requirements of "economic substance” Real presence in the country, and assets functions and risks in accordance with negotiated volume. Its main activity is neither the securing of passive revenues, nor the intermediation with or to Argentina Brokerage operations with other members of the group should not be more than 30% The quote value to date of completion of the loading. If the agreed price is higher, it is not adjusted Excluding Method GIZ-CIAT Seminar – JUNE 2014

Information is necessary to carry out the controls: "SIXTH METHOD“ CONTROL STRATEGY Information is necessary to carry out the controls: Developmento of proper databases Information from the taxpayer, third parties and information from other organizations (ex. BCRA, Customs) Development of contracted databases Development of the Information exchange (tax and customs) GIZ-CIAT Seminar – JUNE 2014 7 7

Applying international information exchange "SIXTH METHOD“ CONTROL STRATEGY Applying international information exchange Request to the destination country Confirm final value, invoicing chain and payment circuit (“beneficial owner”). Request to the invoicing country Verify economic substance and invoicing chain Synergies of cooperation within the tax and customs scope Wide network countries with existing bilateral and multilateral instruments: - Customs cooperation: 70 - Tax cooperation: 61 GIZ-CIAT Seminar – JUNE 2014 8

Economic substance of traders STRATEGY OF CONTROL "SIXTH METHOD" Examples of the results obtained through the exchange of international information: Economic substance of traders We've had cases where jurisdictions reported that the alleged traders did not legally existed. Invoicing chain and the product final value Countries that contributed with data and documentation that allowed closing the invoicing chain and test the real value of the goods at destination which sheds important differences with the value declared in Argentina. Information requests received from other countries As a result of requests made to destination countries, this made those countries interested in the import value. GIZ-CIAT Seminar – JUNE 2014 9

RESULTS GIZ-CIAT Seminar – JUNE 2014 10

RESULTS - In self declared adjustments the highest impact is obtained during the year of implementation (2003-2004) when traders could not be justified. - Next ,sector operations were restructured , and matrix companies or related companies located in non-transparent tax countries were designed as TRADERS. -During the last years, the national-level triangulation has been diminishing. This behavior is not observed in the agro exporting sector, which keep triangulating 98% of exportations - Countries with highest triangulation keep being the ones were the agro-exporting sector TRADERS are located. GIZ-CIAT Seminar – JUNE 2014 11

RESULTS 2009 2010 2011 2012 % Triangulation 49% 44% 38% 32% 2010 2011 2012 % Triangulation 49% 44% 38% 32% GIZ-CIAT Seminar – JUNE 2014 12

MAIN COUNTRIES – TRADERS LOCATION GIZ-CIAT Seminar – JUNE 2014 13

Fights evasion in strategic sectors of the Argentine economy CONCLUSION SIXTH METHOD Fights evasion in strategic sectors of the Argentine economy Prevents the relocation of benefits caused by the harmful tax planning Discourages harmful triangulation and allows the detection of intermediaries without "economic substance" GIZ-CIAT Seminar – JUNE 2014 14

Thank you very much Ezequiel Moreno ejmoreno@afip.gob.ar