Cargill Argentine SA channelled 98% of its commodity exports through a branch in Uruguay. Cargill Argentine SA invoiced the exports to the branch, but shipped the goods directly to the customers. The prices charged by the branch to its customers could be the same, lower or higher than the price charged by Cargill Argentine SA to the branch, hence it would assume the price risks from the time of purchase from Cargill Argentine SA until the final sale to each customer.
Following an audit, the Argentine Revenue Service (AFIP) issued a transfer pricing assessment for FY 2000 to 2003. According to the tax authorities the pricing of the transactions between Cargill Argentine SA and the Branch in Uruguay had not been at arm’s length. Instead of pricing the commodities on the contract date, the tax authorities priced the transactions on the date of shipping – based on the so called sixth Method.
An appeal was filed by Cargill Argentine SA with the Tax Court which set aside the assessment and decided parcially in favor of Cargill Argentine SA. However in regards of an adjustment related to prices of soybean oil to Russia via the branch the assessment was partially upheld and referred back to the tax authorities for a reassessment.
An appeal was then filed with the Court of Appeal.
Judgment
The Court confirmed that Adjustment I, where AFIP compared the resale prices to cost (i.e., the purchase price from Cargill), was not valid under the transfer pricing rules applicable at the time. The law did not prohibit resale at a loss nor allow substituting cost as a comparable for resale prices. The Court emphasized that consolidated results between Cargill and its branch should be used, and only third-party transactions were relevant for comparability.
Regarding Adjustment II, where AFIP’s use of grain prices published by SAGPyA on the shipment date, the Court upheld the Tax Court’s position that using the contract agreement date for comparisons was valid. This was supported by expert reports showing that the agreed prices were within market ranges and often higher than shipment-date prices. The Court also rejected the retroactive application of the “sixth method” introduced by Law 25,874 after the relevant tax years.
On Adjustment III, involving two soybean oil transactions restructured without supporting evidence, the Court upheld AFIP’s position. Cargill failed to justify discrepancies in invoicing between CSU and Cargill International SA, leading to confirmation of the adjustment, associated fine, and interest.
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