AFIP sought taxes from big tech, but the Fernandez government exempted Mercado Libre

Argentina’s Federal Administration of Public Revenue (AFIP), now renamed the Customs Collection and Control Agency (ARCA), attempted to collect more taxes from big tech companies during Alberto Fernández’s administration, but in most cases was unsuccessful. The agency targeted Mercado Libre, Meta (Facebook), Uber, and Netflix for their tax benefits, with mixed success.

Tech companies are major players in today’s global economy; their profits are boosted by tax avoidance strategies that, in many cases, are driven by lobbying various authorities and fueled by the close ties between businesspeople and politicians, according to the transnational investigation La mano invisible de las Big Tech (The Invisible Hand of Big Tech), coordinated by the Centro Latinoamericano de Investigación Periodística (CLIP) and Agência Pública with the participation of elDiarioAR in Argentina.

Mercado Libre, an emblematic Argentine “unicorn” company that began as a start-up in 1999, has enjoyed tax exemptions from the state since 2007. The company has been listed on the New York Stock Exchange since that same year and has become one of the most powerful technology companies in Latin America, with net revenues exceeding $20 billion in 2024, according to its financial statements.

The company still receives public aid, which has sparked accusations of lobbying allegedly carried out by its founder, Marcos Galperín. Mercado Libre received $298 million in benefits from tax exemptions and discounts on employer contributions from 2022 to last June, according to information submitted by the company to the U.S. Securities and Exchange Commission (SEC).

In August 2022, the AFIP—which is responsible for collecting taxes in the country—filed an internal administrative complaint against Mercado Libre for alleged tax and employer contribution evasion between 2017 and 2019, considering that the company had obtained tax benefits from the Software Promotion Regime without meeting the requirements to do so, as confirmed by three senior official sources involved in the case at both the Ministry of Economy and the tax agency. The sources remained anonymous because both the complaint and other information involved in this investigation are protected by tax secrecy. That software regime was replaced in 2019 by another called the Knowledge Economy Law, when the company was accused of lobbying for the approval of the new regulations.

To obtain tax exemptions under that regime (which was in force until 2019), companies had to demonstrate that their main activity was in the software industry, which included the creation, design, production, and implementation of computer systems. The complaint argued that most of Mercado Libre’s revenue came from commissions on e-commerce sales, but not from the generation of software, which the company also uses for its own commercial activity. Finally, the authority responsible for enforcing the regime, the Secretariat of Knowledge Economy of Alberto Fernández’s government, ruled that the company was eligible for the benefit because they considered that it met the requirements.

How did the tax benefits impact Mercado Libre’s numbers? In 2019, the year it was under investigation by AFIP, the company received income tax and employer contribution discounts of US$19.9 million, according to the balance sheet the company filed with the US SEC.

At that time, the AFIP was headed by Carlos Castagnetto, a trusted aide of Cristina Fernández de Kirchner. Meanwhile, the General Tax Directorate (DGI) was headed by former Santa Cruz senator Virginia García, sister-in-law of Máximo Kirchner, the son of the then vice president. The complaint against Mercado Libre was signed by the then deputy director general of Tax Operations for Large National Taxpayers, Alejandro Otero, according to this investigation’s reconstruction based on various sources within the agency.

The administrative complaint was referred to the authority responsible for enforcing the regime, which was the Secretariat of Knowledge Economy, headed by Ariel Sujarchuk, who reported to the then Minister of Economy, Sergio Massa. Sujarchuk consulted with the technical department and finally the national director of Knowledge Economy Development, Mariana Ferreira, who remains in office, signed a ruling rejecting the complaint against Mercado Libre on the grounds that it met the requirements to be included in the regime, according to officials in charge of the matter. Three senior officials involved in the case confirmed the information to this team.

One of those sources recalled that the company owned by Galperin, Argentina’s richest man, had already been registered under that regime since 2007, authorized at the time by the government of Néstor Kirchner. This team attempted to contact those responsible at the AFIP at the time, as well as Sujarchuk and Ferreira, to learn more details about that resolution, but those involved did not respond to the inquiry. This team asked the then and current authorities of the Secretariat of Knowledge Economy, but they declined to comment, based on the tax secrecy that protects the tax information of any taxpayer, including Mercado Libre.

This was not the first time that tax agency officials had questioned the tax benefits received by Mercado Libre. Although politically different, the AFIP had also tried to get the company to pay more taxes during Mauricio Macri’s administration but was unsuccessful.

In September 2017, the then deputy director general of Tax Operations for Large National Taxpayers at AFIP, Juan Carlos Santos, had denounced the company on grounds very similar to those put forward in 2022: that most of its employees were not engaged in software development, but in e-commerce.

The complaint was referred to Macri’s Minister of Production, Francisco Cabrera. Two months later, in December 2017, the complaint was rejected on the same grounds, according to off-the-record testimony from two of the senior officials involved in the 2022 complaint.

Mercado Libre was well within the tax and employer benefits granted by the regime, then-Minister Cabrera considered. He argued that the company was engaged in developing software for those who sold through its platform and that it charged commissions for those activities, which in turn represented 97% of its revenue. The 2017 complaint involved taxes and contributions that the company had failed to pay in the amount of 500 million Argentine Pesos, equivalent at the time to US$28.5 million, for previous years’ balance sheets, according to the AFIP’s complaint.

When consulted by this team, former Minister Cabrera explained the decision taken on the basis that there was a regulatory decree of that law which explicitly stated that software developments for the company’s own use were valid if the final beneficiary was an external user, “as is the case with Mercado Libre sellers and buyers.” He added: “This is not just a local technical opinion; it is the way these promotion regimes are designed in many parts of the world.”

Three months after the case, in March 2018, the then head of the AFIP, Alberto Abad, resigned from his post. The dispute over Mercado Libre was one of several internal fights he had during Macri’s administration. He was replaced by Leandro Cuccioli, who remained there until 2019. Years later, in 2024, Cuccioli was appointed vice president of Mercado Libre. Galperin’s ideological affinity with Macri’s administration is publicly known: during his tenure, the founder of Mercado Libre returned to live in Argentina after 14 years in Uruguay.

CLIP and elDiarioAR sent a questionnaire to Mercado Libre to ask about these allegations by AFIP and Galperín’s relationship with Macri’s government, but the company did not respond to the questions.

The benefits for Mercado Libre

The Software Promotion Regime was an initiative launched in 2004 by Néstor Kirchner to boost an industry made up mainly of small and medium-sized Argentine companies with growth potential. Although Mercado Libre was already a leader in this sector, it was still far from becoming one of the most valuable companies in Latin America, as it would be years later.

The regime was set to expire at the end of 2019, which is why Mauricio Macri’s administration promoted an even broader regulatory framework called the Knowledge Economy, which also covers audiovisual production, biotechnology, geological services, nanotechnology, and the aerospace industry, among other activities. For companies, the goal was to maintain or even increase the tax benefits already granted to them by the state through the regime still in force.

Macri presented the bill on March 12 of that year, after a meeting with this broad sector. He was there alongside Galperín, among other business leaders. “Today we are presenting the bill for the Knowledge Economy. It is important because this sector is one of the most dynamic in the country: in 2018, it generated US$5.3 billion in exports and is our third largest export sector,” wrote the then-president on his Twitter account.

Macri published this post along with a video with the CEO of Mercado Libre: “I am happy to be sending this Knowledge Economy Bill to Congress, which will greatly help to generate employment and keep Argentina competitive in an industry where all the countries in the region are doing everything possible to attract and retain the talent we have. We hope it will be approved by Congress,” Galperín said on camera.

Unlike the software law, the new bill explicitly mentioned e-commerce, Mercado Libre’s main activity. In other words, the company thus avoided the challenge posed by the AFIP (and already rejected by the Macri administration) regarding an interpretation of software creation. High-level sources within the tax agency consulted by this alliance believe that this settled the debate over whether Mercado Libre was indeed covered by the new tax incentive regime.

The new law also granted benefits: while the old regime reduced the income tax for beneficiary companies to an effective rate of 12% and cut their employer contributions by 70%, under the new law they would pay 15% on their profits and maintain the reduction in Social Security contributions from the previous regime.

A little over a month after the bill was introduced, on April 24, 2019, it was approved by the Chamber of Deputies, with 182 votes in favor and only two against. An unusual consensus was reached between the ruling coalition, Cambiemos, and the Peronist opposition. Only the two deputies from the Left and Workers’ Front (FIT), an alliance of Trotskyist parties, voted against it.

During the congressional debate, Nicolás del Caño, a deputy from the FIT, questioned whether the new law would benefit “the private appropriation of large knowledge companies” and mentioned “Galperin, a businessman and friend of Macri, who, when the president presented this bill, was seen happily lobbying Congress to pass it.”

On the day of its approval, the CEO of Mercado Libre celebrated on Twitter the “resounding support of all parties.” Someone reminded him in an exchange on that social network that the left had voted against it, to which the businessman replied: “Meanwhile, communism in China is focused on growing its knowledge industry, which they see as one of the main areas of innovation and wealth and job creation. #izquierdadecabotaje #sintonizanenblancoynegro.”

Days after the bill was passed, Peronist social leader Juan Grabois accused Mercado Libre of alleged “smuggling, tax evasion, financial speculation, consumer abuse, and unfair competition,” while objecting to the inclusion of this company among the beneficiaries of the software and knowledge economy laws.

As in the Chamber of Deputies, there was also agreement among the majority blocs in the Senate to unanimously approve (49 votes in favor, zero against) the Knowledge Economy Law. Peronist Senator Mario Pais, who is close to Kirchnerism, had been critical of the new law during the congressional debate because of the benefits for Mercado Libre and even said he would vote against it, but ultimately supported the initiative.

“Perhaps I don’t want this fiscal effort to go to large companies such as Mercado Libre or concentrated international laboratories. Unfortunately, with pain in my soul, I wanted to base my negative vote on this bill on the economic and constitutional shortcomings that I am pointing out,” the Peronist senator had argued.

Esteban Bullrich, a member of the ruling party who is close to Macri, replied: “Instead of thinking that it is a shame that these companies are growing, we should think that this growth generates employment. Let’s not be ashamed that large companies are becoming even larger.” Senator Federico Pinedo, who is to Macri, also defended Mercado Libre.

Pais again attacked the company: “But Mercado Libre is already big. When it was small, the promotion and fiscal effort of all Argentines to promote it was welcome. Once they are big, when they are multinationals, like Bayer, Gador, Roche, Pfizer, Glaxo, which can incorporate technological innovation, I don’t know if we could specify that.”

On June 10, 2019, Macri enacted the Knowledge Economy Law (published in the Official Gazette) and, on the same day, he and Galperin inaugurated a Mercado Libre development center in Buenos Aires. “Very recently, we have achieved something that is also very good: through dialogue and agreement with entrepreneurs, the government, senators, and deputies, we have achieved almost unanimously a new law to promote and further boost the knowledge economy,” celebrated the then president.

The public sympathy between Macri and Galperin was reflected in the businessman’s electoral support, as he publicly called for votes for the then president during the campaign. “Because I want my children to live in a Democratic Republic, with an independent judiciary, freedom of the press and freedom of opinion, with individual freedoms and looking toward the future,” wrote the country’s richest businessman on his X account alongside a photo of the president with the inscription “I vote for him.”

In fact, Galperin signed up as a representative for PRO, the political party created by Macri, to oversee voting in the province of Buenos Aires on election day. In addition, his brother, Nicolás Galperin, made three personal donations to Macri’s re-election campaign, totaling $357,644 (equivalent to $8,000) on the last day of July 2019, according to the records of the National Electoral Chamber.

A new law

Despite its almost unanimous approval, the Knowledge Economy Law, which was to come into force in 2020, began to be increasingly questioned by Peronism. Days after Alberto Fernández was elected president in January 2020, the new government suspended the application of the new regime and proposed a reform that reduced the benefits for large companies, such as Mercado Libre.

With Macri’s defeat complete, Galperín was received by Alberto Fernández, but after that meeting, in February 2020, he announced that he was returning to Uruguay, a decision he has maintained to this day. Argentina’s richest man, whose fortune is close to US$10 billion (according to Forbes magazine’s ranking), was affected by the increase in personal property tax led by the Fernandez administration.

In June 2020, amid the Covid quarantine, the Chamber of Deputies approved the reform of the Knowledge Economy Law with the unanimous support of the ruling Peronist party and the opposition, renamed Juntos por el Cambio (JxC): 247 votes in favor and 2 against, from the leftist FIT party. “Cambiemos said they would not discuss any issue that was not related to the pandemic, but now, strikingly, we are discussing the reinstatement of Macri’s Knowledge Economy Law, which was requested by none other than Marcos Galperin,” said Deputy Del Caño, referring to the regime approved in 2019, suspended in 2020, and which was to be reformed with the new law.

Lobbying on the reform was a topic of debate. Peronist Lucía Corpacci asked opposition representatives “to reflect and not put personal interests first or lobby only for the big players.” Jorge Vara, a representative from Juntos por el Cambio, replied: “I think the cost-benefit ratio is not a lobbying issue. They accused us of being lobbyists. I don’t know where the lobbies are.”

In October 2020, the Senate passed the bill into law by 41 votes to zero but introduced changes to the law. One of the amendments concerned the income tax rates, which would vary according to the size of the companies. Just as the first Knowledge Economy Law of 2019 reduced income tax to 15% (the rate for other sectors was 30% at the time), in the new 2020 law, tax benefits now depend on the size of the company: the effective rate for small firms was reduced to 12%, that for medium-sized firms rose to 18%, and that for large firms to 24%.

In addition, the new law imposed a limit on the number of employees for whom employers could deduct contributions. Finally, a Trust Fund for the Promotion of the Knowledge Economy was created to support SMEs, financed by 4% of the profits of large companies, 2% of medium-sized companies, and 1% of small companies.

Despite the reduction in benefits for large companies in the second Knowledge Economy Law, thanks to the e-commerce boom caused by the pandemic, Mercado Libre managed to increase its activity in 2020, as well as the amount of millions of dollars deducted from taxes and employer contributions, according to the balance sheets filed with the US SEC. It went from obtaining tax benefits of US$19.9 million in 2019 to US$23.3 million the following year.

The spotlight on multinationals

Mercado Libre was not the only technology company to come under scrutiny for its taxes in Argentina. Big tech companies are known globally for choosing low-tax countries to establish themselves legally and, from there, provide services in other countries and pay as little tax as possible. In some cases, the Argentine authorities failed, and in others, they succeeded. Companies based in countries that signed agreements with Argentina to avoid double taxation came out on top, but otherwise, these multinationals were exposed to claims from AFIP.

Since 2024, big tech companies have begun to pay a minimum global tax of 15% in 55 countries (only Brazil applies it in Latin America) under an agreement within the Organization for Economic Cooperation and Development (OECD). President Javier Milei, who defines himself as a libertarian, did not implement it. In line with this, US President Donald Trump not only rejected the payment of this tax, but also threatened in a memorandum to sanction countries that apply it. Most big tech companies are US-owned.

The AFIP, led by Cuccioli, conducted internal consultations in 2018 to determine whether it should charge Facebook’s subsidiary income tax for the company’s advertising services that were contracted by Argentine clients to attract local audiences. However, the agency’s legal department rejected this possibility. “There is no evidence of any activity carried out by the foreign company in the territory of the Nation,” stated AFIP’s binding consultation 54/2018, which is public. The resolution does not mention Facebook by name, using only the acronym “XX” to protect tax secrecy, but two senior officials from the agency confirmed to elDiarioAR that it was the Argentine subsidiary of the US company created by Mark Zuckerberg.

But three years later, the AFIP reversed the resolution. A withholding agent (whose identity is unknown) asked the agency “whether advertising services intended for the Argentine market that are contracted from the country to Facebook Ireland Limited are subject” to income tax.

“In this regard, when domestic entities make the corresponding payment to the foreign company for the services rendered, they shall withhold and remit to the AFIP the tax applicable to such income,” added the agency in the same resolution, at that time headed by Mercedes Marcó del Pont, a leader close to Alberto Fernández. The opinion was supported by the Ministry of Economy, then headed by Martín Guzmán.

The following year, Facebook Argentina paid $1.554 billion Argentine pesos (US$8.7 million at the official exchange rate) in income tax, or 5.4% of its sales, according to its balance sheet. But in 2023, due to the devaluation of the peso, it paid $5.638 billion (US$6.9 million) in income tax, 13.8% of its sales. This was more than double the previous year’s amount, even though the dollar value was lower due to the devaluation of the Argentine peso during those two years. The increase in taxes was “significant,” according to the accountants consulted for this investigation.

In its annual report, Facebook Argentina states that its only client is Meta Platforms Ireland Limited, and that it sells services, consulting, advice, and assistance required by the Irish subsidiary “in connection with marketing and sales support activities for the development, expansion, and maintenance of user, advertiser, and developer communities in Argentina.” The Income Tax Law establishes that non-residents are taxed exclusively on their Argentine-source income.

There were other cases. The Ministry of Economy ruled on a case involving an online platform for hotel and tourist apartment reservations, according to senior AFIP sources. The ministry understood that, although the income tax law does not expressly refer to digital services, there is no doubt that the commissions charged by this foreign company for its services are subject to the tax. However, as this company has its tax residence in the Netherlands, a country with which Argentina has a double taxation agreement, and does not have a permanent establishment in Argentina, the agency ruled that it should only pay taxes in the European country.

AFIP officials consulted assured that the same happened with Netflix. The Ministry of Economy, under the leadership of Guzmán, ruled that although the streaming company’s activity would be subject to the presumption of local source income, since it is based in the Netherlands and does not have an Argentine headquarters where such profits are generated, it must pay taxes in the European country. This team contacted Netflix, but the company did not comment.

Uber also established its tax residence in the Netherlands, but the Macri administration considered that it had a permanent establishment in Argentina, on the understanding that local drivers were its employees.

In response to a query from the AFIP, then headed by Cuccioli, the Ministry of Economy ruled in 2019 that Uber had a local presence. The tax agency sued Uber for the payment of taxes and employer contributions totaling 358.7 million Argentine pesos, equivalent to US$7.7 million. Senior AFIP sources explained that there are two similar companies in Argentina called Uber Argentina Sociedad Responsabilidad Limitada (SRL) and Uber International BV in Argentina, but neither of them is responsible for paying the debt on the grounds that they lack a permanent establishment and are independent entities from the one that invoices in the Netherlands.

A spokesperson for Uber told this team that the case “remains in administrative proceedings” within the AFIP, still without resolution.

Milei, the friend of Big Tech

Since taking office as president, Milei has tried to get closer to Big Tech, a sympathy that has also been reciprocated by these companies. His relationship with Elon Musk, the richest man in the world, and his ultra-liberal policies give these multinationals hope for good business in Argentina. One of Milei’s first trips as president, in June 2024, was a visit to Silicon Valley, California, the headquarters of many of these Big Tech companies. There, he met with the CEOs of several companies, including Tim Cook (Apple), Mark Zuckerberg (Meta), and Sundar Pichai (Google).

The interest was mutual from the first day he took office. Google was the company most interested in Argentina within this sector: local, regional, and global executives from the company visited government offices several times since Milei took office to make their formal presentation, but also to discuss possible investments in the country. There were 14 official meetings between Google employees and various Argentine government officials during 2024, Milei’s first year as president, according to the Registro Único de Audiencias (single registry of appointments).

Less than three months after arriving at the Casa Rosada, the Foreign Ministry and Google signed a cooperation agreement “for international technological strengthening,” according to a statement. But beyond the announcement, neither the Argentine government nor Google made any further joint actions public. Relations between the parties continued, with more meetings.

Karan Bhatia, an American lawyer and former trade representative for the George W. Bush administration, serves as Google’s vice president of global government affairs. Bhatia was at the Casa Rosada on May 20, 2024, for high-level meetings with then-Foreign Minister Diana Mondino and the then-Interior Minister Guillermo Francos, one of Milei’s most trusted leaders. During this last meeting, they discussed Argentina’s “modernization process” and “also talked about Google Argentina projects related to artificial intelligence, ICTs, and tools to strengthen learning processes,” according to the public record.

Following these meetings, Milei announced during his trip to Silicon Valley that he would launch a reform to make the state more efficient through artificial intelligence developed by Google. “We had a chat with the people at Google, they actually have a module for reforming the state, but with artificial intelligence, so we’re going to be moving forward on that,” the Argentine president said in a conversation with reporters at the Casa Rosada. Some media outlets at the time compared the project to the agreement between Google and El Salvador, which was endorsed by President Nayib Bukele.

Eleonora Rabinovich, Google’s head of government affairs for Latin America, held meetings in June, July, and August with Argentine Deputy Chief of Staff José Rolandi to discuss this issue, according to the record. However, almost a year after those meetings, there has been no news about the alleged agreement to digitize the state proposed by the company. “Nothing has been signed yet,” said a senior executive at Google Argentina when asked about this investigation.