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Author's profile photo Steve Sprague

P&G suspended by Argentina AFIP on allegations of tax fraud

In the latest manifestation of possible tax fraud, which has been rampant as of late in parts of Latin America, Argentine officials are accusing one of the world’s biggest household consumer goods producer of malfeasance.

Argentina’s national tax agency recently suspended Procter & Gamble from being able to conduct business in the country because the company is believed to have committed fraud by illegally sending money to another part of the world, numerous media outlets reported, including The Associated Press.

P&G Argentina, it’s alleged, overcharged for some of its imports by $138 million, all in an effort to accumulate earnings. Most of the products were for personal hygiene, like shaving blades, razors as well as diapers.

The AFIP tax agency said in a statement on Nov. 2 that P&G’s imports came into Argentina from Brazil, but when the company received payment for the shipments, it was routed to an offshore bank account in Switzerland.

Argentine officials contend that P&G did this in order to avoid paying taxes.

Ricardo Echegaray, chief tax collector, indicated in a statement that this issue can be settled by P&G owning up to the charges.

“Our main goal is for P&G to return the dollars taken out of the country to the central bank and to pay customs penalties and the income tax that was evaded by manipulating transfer prices,” said Echegaray. “We must end this cheating by international companies.”

P&G, for its part, has denied the allegations. Reuters reported that the household products maker says it’s paid all the taxes it owes but is “working to more fully understand the concerns.”

Governments devoting more resources to fighting tax evasion
Tax fraud has been a growing problem in Latin America, so much so that President Cristina Fernandez de Kircher has made several statements concerning the issue and increased efforts to curb the illegal activity. Foreign-currency reserves have steadily declined since 2011, dropping from $53 billion in that year to its current $28 billion, according to Worldbulletin News.

Another reform Argentina and other Latin American countries are implementing in order to fix a broken system is an e-invoicing mandate. These invoices will allow governments to keep track of what business transactions have taken place, making it more difficult for companies to dodge taxes.

The trend is clear in Latin America — these tax authorities are cracking down on tax evasion in order to ensure consistent revenue streams. Multinationals need to ensure their business processes and more importantly their accounting systems are designed to protect against these issues.

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