July 31, 2014
AFIP accuses Despegar.com of evasion
Online travel operator has its wings cut by the tax man, comes flying back with injunction
The largest online travel firm in Latin America — and the fifth largest in the world — had its wings cut yesterday — at least temporarily — with the AFIP tax bureau closing down Despegar.com’s local operations over allegations it used its office in the US state of Delaware to evade Argentine profit taxes.
But the company founded in Argentina in 1999 bounced back later in the day, by obtaining a preliminary injunction and taking the opportunity to label AFIP’s decision “an act of bad faith.” Meanwhile, a judicial investigation into the company’s tax history began in 2013 and remains open.
Court sources with access to the case files outlining company’s financial activity indicated that tax officials claim Despegar.com had five billion pesos worth of transactions but the figure it reported to the AFIP were 10 times lower — 500 million pesos.
The case alleges that the firm used its US office to avoid paying taxes in Argentina for the last five years.
The east coast US state of Delaware is one of few that offers favourable tax breaks to companies owned by non-US residents.
Despegar.com was founded in 1999 in Argentina, and has grown to become the largest travel agent in the region and one of the fifth largest in the world. It sells flights, hotels and travel-related services in 12 countries, the majority Latin American.
AFIP yesterday revoked the company’s local tax identification code, effective from midnight, using an administrative measure and not the backing of the courts, to essentially freeze the company’s commercial activities in the country.
“Companies that undertake their activities in Argentina should know they have to pay taxes in our country,” explained AFIP head Ricardo Echegaray yesterday.
“We take concrete actions against those who participate in tax planning that is harmful (to Argentina),” he added, while making mention of a recent announcement by the G20 meeting of finance ministers and central bank leaders that the economic body would this week move against tax evasion by multinational corporations.
For its part, Despegar.com yesterday responded to news of the closure by marking its offices on Corrientes avenue and Jujuy street in the city with “closed” signs, while the company later announced publicly it would seek a court injunction.
By the afternoon, lawyers representing the firm — which employs around 1,000 people, most of whom are in Argentina — had been successful in obtaining a preliminary injunction with the Buenos Aires City courts, with its management taking the opportunity in a subsequent press release to label AFIP’s decision “an act of bad faith.”
“It affects users from the largest community of travellers in Argentina and the more than 850 employees that work at the Argentine branch of the company,” it said in a press release.
The firm also tried to link the legal case against it with recent government attempts to limit capital flight from Argentina, at a time when the country’s reserves continue to decline.
“This action is probably part of efforts to restrict the purchase of overseas holidays and to have these measures extend to the rest of the travel agencies” in Argentina, it continued.
It also addressed concerns of customers, clarifying that purchases made prior to yesterday have already been successfully processed, while telling those who had paid for travel services yesterday that “an alternative is quickly being sought.”
Court sources told the media yesterday that investigations into Despegar.com in Argentina began when some local tax payers wanting to lodge claims for the 35-percent profit tax charged on overseas travel-related purchases were unable to obtain documentation from the company, providing the profit tax had been paid.
What’s more, the case reads that the founders of the company, Cristian Vilate y Alejandro Tamer, sold their stake when the investigation began in 2013: 97 percent to US-based Despegar.com Inc — whose owner has no financial capacity, and the remaining three percent to Argentine firm LA Inc SA, comprised of a sole trader and Despegar Online SRL, which has no declared assets with AFIP.
Roberto Souviron is the current CEO of Despegar.com Inc, Federico Fuchs is the Chief Financial Officer and Erica Imoto Saito is the Marketing Director, according to Bloomberg.
The decision by the country’s tax bureau is the second sanction Despegar.com has been handed this year.
Last month in Colombia the firm was fined 12 million Colombian pesos (US$6,000) and its commercial activity frozen for 10 days, after Colombia’s Industry and Commerce Superintendent declared part of its “Best Price Guaranteed” advertising campaign to be misleading. The entity also reported price variances during transactions for the same product and found prices published without clarification of the currency being charged to customers.
The judicial investigation into the financial operations of Despegar.com Argentina’s operations began in April 2013, presided over by judge Javier López Biscayart.