Argentina suspends Procter & Gamble operations in 'tax fraud probe'

Argentine authorities accused P&G of hiding taxable income, while American company says it trying to 'understand the allegations'

Argentina President Cristina Fernandez de Kirchner (Getty Images)

Argentina has suspended Procter & Gamble operations in the country, accusing the American consumer products giant of tax fraud.

In a statement released on Sunday, the AFIP tax agency accused the company of over-billing $138 million in imports to funnel money out of the country and hide taxable income.

AFIP head Ricardo Echegaray said global companies can't keep "cheating the state". A company spokesperson said P&G is currently working to understand and resolve the allegations.

P&G, which specialises in beauty, hygiene and home care products has been operating in Argentina since 1991 and runs three manufacturing plants and two distribution centres.

Argentina lost access to international capital markets following its 2002 default and entered a technical default in July after it missed a deadline to pay its bondholders, including the so-called vulture funds which refused to take part in the country's debt restructuring and demand repayment in full.

The American judge overseeing the case, Judge Thomas Griesa, has blocked Buenos Aires from making payments to the majority of bondholders unless it pays out the full amount to the hedge funds, including Paul Singer’s Elliott Management and Aurelius Capital Management.

Judge Griesa recently declared Argentina in contempt of court after it introduced domestic legislation to bypass his court order, swapping existing bonds covered by US law, for new notes governed by Argentine law. Buenos Aires insists it won't bow to pressure and the dispute continues.