The Argentine government has accused Procter & Gamble of tax fraud and ordered the U.S. consumer giant to suspend its operations in the country immediately.
According to Argentina’s Federal Tax Administration, Procter & Gamble deliberately inflated the price of goods it imported from Brazil by US$138 in an effort to evade tax and move money out of the country.
“P&G funneled currency abroad and hid income that was subject to tax in Argentina,” says a statement posted on the presidential website.
The U.S. firm has denied the charges but stated that it would resolve the issue quickly by negotiating with the Argentine authorities.
P&G has been operating in Argentina since 1991. The company now owns three manufacturing facilities and two distribution centers in the country. The scale of the U.S. firm’s operations in Argentina is unclear, but Latin America accounts for about 10% of its global annual revenue.
According to a Reuters report, in 2006 P&G discounted prices on about 31 products, including shampoos and soap, for at least a year in order to help contain inflation in the country.
Argentina, banished from the international capital markets following its default on bond repayments, is concerned over capital outflow and decreasing foreign currency reserves. Growing inflation and decreased foreign investment has left the government unable to turn the economy around.
In an attempt to bring things under control, the government has often made some surprising changes in regulatory laws, leading to the exit of more companies and foreign capital. Foreign luxury brands like Calvin Klein and Ralph Lauren left Argentina in 2012.