Argentina Pursues Foreign Grain Companies for Tax Evasion

Argentina is the world's largest exporter of soy oil and soy meal, as well as the third-largest soybean shipper. It's a big market for foreign food processors such as Bunge (BG), Cargill, and Archer Daniels Midland (ADM)—and a tricky one to handle.

In recent months the national tax agency, known as AFIP, has accused Bunge, Cargill, ADM, Glencore International, and other foreign companies of employing tax haven countries to lower their tax bills in Argentina. A local grain shipper has also been accused of tax evasion. While the cases are being decided, the accused companies have been kicked off a registry that gives them tax breaks on sales within Argentina. The registry also simplifies access to permits needed to move farm produce to plants, mills, and ports.

On Apr. 8 an Argentine court backed AFIP's removal of Bunge from the registry. The tax agency filed a complaint late last year accusing Bunge of evading $252 million in taxes. Bunge spokeswoman Susan Burns declined to comment. Cargill, which has said it has proven the inaccuracy of AFIP's allegations, secured an injunction on Apr. 1 that lets the company "operate normally" while litigation continues. ADM and Glencore say they are in compliance with the law and are cooperating with AFIP. An AFIP press official would not comment while the probes are still open.

Crackdowns on foreign companies have happened before during the presidency of the late Néstor Kirchner and that of his wife and successor, Cristina Fernández de Kirchner. GDF Suez and EDF, two French utilities, left after the regime said the companies were underinvesting. In 2007 a New York hedge fund, Eton Park Capital Management, was barred from buying half of an Argentine electricity transporter. The government said Eton did not know enough about the industry. Two local electricity companies then bought the stake. "The government is interested in having local businessmen in certain sectors it considers crucial. It's a form of 'nationalization,' but not in the sense of state ownership," says Fausto Spotorno, an economist at Orlando Ferreres y Asociados, a Buenos Aires research firm.

Clarín and La Nacion, the biggest dailies, have reported that the government is drafting a bill to grant two local farm cooperatives control of more than 30 percent of all soy exports. The Agriculture Ministry declined to comment. Although the government has not said the foreign grain companies will have to yield some business to the co-ops, Ernesto Ambrosetti, chief economist of the Argentine Rural Society, a farmers' group, says that could be the outcome. "There's no doubt this is the government putting pressure" on exporters, he says. Another possibility: "Foreign companies with a local partner are more successful," says Spotorno. Spain's Repsol in 2008 sold a 15 percent stake in YPF (YPF), its Argentine oil company, to the Petersen Group, a local business. A similar deal may await the grain companies.

The bottom line: Argentina's tax case against the world's top food companies may end up securing more power for local business.

    Before it's here, it's on the Bloomberg Terminal.