The facts
Compañía de Transmisión del Mercosur SA (CTM or the Taxpayer) is an Argentine company operating electricity transmission infrastructure. CTM belongs to the Pegorin group, in which CIEN held a 99 per cent shareholding in CTM and also held 99 per cent of Transportadora de Energía SA (TESA), a related entity.
Between 1999 and 2006, CIEN lent funds to CTM under a series of framework loan agreements (contratos de mutuo and addenda), with the loans exclusively destined to finance construction of the transmission infrastructure. The loans carried interest at market rates. CTM’s regulatory environment in Argentina restricted its ability to generate revenues — from 2008, CTM received no payment for energy transport services due to domestic energy policy, and received only transitional compensation limited to operating and maintenance costs.
CTM made partial repayments of both principal and interest over the life of the loans, documented through accounting records, SWIFT payments, and expert accounting reports. Some interest payments were made through capitalisation. The loans were not repaid on the originally stipulated schedule due to CTM’s constrained revenue position, but partial payments continued throughout the audit period. AFIP did not challenge the interest rates on the loans as failing to meet market conditions.
AFIP conducted an audit covering income tax (fiscal years 2002–2014) and minimum presumed income tax (2012–2014). AFIP’s position was that because CIEN was CTM’s majority shareholder and the loans had not been repaid on time, the realidad económica (economic reality) principle required the funds to be recharacterised as equity contributions. On that basis AFIP disallowed CTM’s deductions for interest and foreign exchange differences, and assessed additional tax, penalties, and interest.
The litigation
Tribunal Fiscal de la Nación — assessments revoked · taxpayer prevails
The Tribunal Fiscal de la Nación revoked all of AFIP’s assessments. CTM had in fact made partial repayments of principal and interest — a fact AFIP acknowledged in its own assessment notices. The accounting records, SWIFT payments, and expert evidence confirmed multiple partial repayments throughout the audit period, including full settlement of the first 1999 loan agreement. The existence of partial repayments was incompatible with a finding that the funds had the permanent character of equity.
The non-payment of the full balance on the originally stipulated dates reflected CTM’s regulatory and commercial environment. CTM’s inability to collect revenues from 2008 was evidenced by expert technical and accounting reports showing persistently negative commercial results. The interest rates had never been challenged as non-market. The Tribunal found the loans had been structured in compliance with transfer pricing requirements and Argentina’s thin capitalisation rules. On minimum presumed income tax, the Tribunal applied the Supreme Court’s ruling in Hermitage SA (Fallos 333:993) — the constitutional bar on imposing a presumed minimum income tax where actual commercial results are demonstrably negative.
Cámara Contencioso Administrativo Federal, Sala I — AFIP’s appeal dismissed (May 2025) · taxpayer prevails
AFIP appealed, arguing that repeated deadline modifications demonstrated a permanent character to the funds; that further loans in 2010–2011 showed CIEN’s purpose was capital support not lending; and that the Transportadora de Energía SA Supreme Court precedent should be distinguished on its facts. The Court of Appeal dismissed all grounds. It confirmed that the Transportadora de Energía SA (Supreme Court, 26 December 2019) doctrine applied directly. That doctrine held two insuperable obstacles to AFIP’s recharacterisation:
- First: late repayment of an intercompany loan cannot by itself — and without regard to the specific circumstances of each case — produce a change in the legal nature of the instrument. To hold otherwise would mean that the legal substance of every transaction is hostage to whatever happens to it afterwards.
- Second: even accepting AFIP’s logic, the partial repayments that had undeniably occurred would require any recharacterisation to be segmented — treating repaid amounts as genuine loan and only the unrepaid balance as potential equity. AFIP’s failure to account for the partial repayments at all was a fatal flaw.
The Court further confirmed that the loans had been structured with transfer pricing studies and in compliance with Argentina’s thin capitalisation framework. On minimum presumed income tax, Hermitage was confirmed: actual negative commercial results in the relevant periods precluded the presumed minimum tax.
ajiho commentary
The loan substance question — what AFIP needed but did not have
The AFIP position collapsed because it was built on a single factual observation — late repayment — and extrapolated from that one fact to a wholesale recharacterisation. The realidad económica principle requires serious grounds to displace the legal form of a transaction, not retrospective inference from outcomes that might have multiple explanations. What AFIP would have needed — and conspicuously did not have — was evidence that the parties did not intend the funds to be repayable at all; that the documentation was a sham; or that the funds were treated in practice as equity by both parties. None of that was available.
The rate point — a strategic gap
The Court and Tribunal both noted that AFIP had not challenged the interest rates as failing market conditions. In a case where the loan substance argument failed, the absence of a rate challenge meant the deductions were restored in full. Had AFIP run both arguments — substance and rate — it might have preserved a partial adjustment even after losing on recharacterisation. The failure to challenge the rate suggests AFIP’s evidential position on pricing was weak.
The infrastructure context
CTM’s inability to repay on schedule was directly traceable to a regulatory failure — domestic energy policy that diverted export capacity and denied CTM the revenue streams the loans were designed to be repaid from. This is a relevant contextual point for any group with infrastructure or project finance lending where repayment is dependent on regulated revenue flows. Where a borrower’s failure to repay reflects external regulatory constraints rather than financial distress or capital substitution, the loan substance argument is materially weaker.
What this means for your business
Late repayment is not recharacterisation. If your group has intercompany loans that have been extended, restructured, or not repaid on the original schedule, that fact alone — without more — does not convert them into equity contributions. What matters is whether the funds were intended as repayable, whether there is documentary evidence of that intention, and whether the borrower has made any repayments in practice. Any loan extensions or schedule modifications should be documented contemporaneously with a commercial rationale.
Document partial repayments carefully. In CTM, the existence of partial repayments — principal and interest, documented in accounting records and confirmed by SWIFT — was decisive. Where an intercompany borrower is making reduced or partial payments, those payments should be fully recorded and cross-referenced to the relevant loan agreement. A paper trail of partial repayment is a significant evidential barrier to a wholesale recharacterisation argument.
Infrastructure and regulated sector lending. Where intercompany loans fund infrastructure assets subject to regulatory revenue frameworks, the borrower’s repayment capacity may be structurally constrained by factors outside its control. Transfer pricing documentation for these structures should include analysis of the regulatory environment and its impact on projected cash flows, to explain any repayment delays in terms that a tax authority can test against objective evidence.
Case reference
Compañía de Transmisión del Mercosur SA v Administración Federal de Ingresos Públicos · Cámara Contencioso Administrativo Federal, Sala I · Case reference 9939/2019 (TF 32938-I) · 20 May 2025
Judgment published on the Argentine judicial system portal (Poder Judicial de la Nación, pjn.gov.ar).