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Argentine fruit companies under-invoice their exports to avoid taxes

In recent years, Argentine fruit growers have had to deal with many different and exceptional economic policies within the traditional context of global trade. The imposition of withholdings and indirect obstacles to exports has led to an increase in tax evasion through the under-invoicing of exports, a strategy used by companies in the fruit export sector to try to maintain their profitability.

This practice has become more common due to several factors. First, it should be mentioned that during the period January-September 2018, the FOB value declared by the exporters was on average at $ 0.97 per kilo. In the same period of 2019, it stood at $0.78 per kilo, registering a 20% year-on-year fall. Meanwhile, the activity's local internal costs remained stable or increased slightly in the last twelve months - compensated by the devaluation -, so this commercial year would present a worrying breakdown for all exporters.

A second factor is the fruit values achieved abroad. According to different private sources, during 2019 the apple harvest hit an important leap throughout the northern hemisphere. Market rules indicate that, given a greater offer, prices tend to fall in inter-annual terms. However, this season's price drop was far from the 20% recorded by exporters. According to sources from Rio Negro's Secretariat of Fruit Growing - which performs weekly price monitoring in the different destinations - the average values of apples have decreased by around 8% in the northern hemisphere markets. In addition, prices have remained relatively stable in the rest of the external markets.

There is a third factor that adds more uncertainty to the declared FOB values. In September of last year, as a result of the fiscal crisis that dragged the national State, the Macri administration determined the reintroduction of the export rights (withholdings) that consisted of the payment of 4 pesos per dollar of fruit exported. At that time, the tax represented approximately 10% of the declared FOB value. Today that tax is three pesos and represents 5% of the declared FOB.

This indirect export barrier has been one of the many reasons that companies have decided to avoid taxes through the illegal mechanics of under-invoicing exports.

But the changes did not stop there. They deepened in recent times. The measures imposed by the government to control the exchange rate, known as the 'cepo cambiario', which were implemented just a couple of weeks ago, widened the gap between the official and the marginal dollar by an average of 20%. In this new scenario, many exporters could declare a lower FOB value over their exportable offer to enter part of their earnings into the country at the official dollar price and smuggle the rest of their income - which can be left in an account abroad - into the country and sell it in the marginal market, which currently pays better than the official exchange.



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