P&G halts operations, starts talks with Argentina over tax fraud charge

BUENOS AIRES (Reuters) - Procter & Gamble (PG.N) said on Monday it had temporarily suspended operations in Argentina after the country's tax authority, which has accused the company of tax fraud, said it started meetings with the world's No.1 household products maker.

On Sunday, Argentina accused the company of hiding income and over-billing $138 million (86.34 million pounds) in imports to get money out of the country, which three years ago introduced stringent capital controls in order to protect its fast-dwindling foreign reserves.

"I can confirm that we have temporarily suspended operations in Argentina," spokesman Paul Fox told Reuters, without giving any other details.

Cincinnati-based P&G, the maker of Gillette razors and Tide detergent, runs three manufacturing plants and two distribution centres in Argentina.

P&G, which earlier this year came under the scrutiny of Mexican authorities for alleged tax avoidance, said on Monday it had paid all the taxes owed but was "working to more fully understand the concerns and to constructively resolve them."

"If P&G's operations in Argentina were suspended for a long period of time, it would make the upper end of 4-6 percent core EPS guidance more difficult to reach," BMO Capital Markets said in a note.

Argentine AFIP tax authority said at the weekend it had suspended P&G's operations in Argentina, retracting its right to export and import.

The company said on Monday its Argentine operations contributed about 1 percent to its overall sales. P&G reported net sales of $83.1 billion in 2014.

Argentina's leftist government has been stepping up state intervention in the economy in an attempt to prevent its latest debt default from triggering a balance of payments crisis.

The country has been banished from international capital markets since its 2002 default on about $100 billion in bonds, compounded by its fresh default on restructured bonds in July.

The government is restraining access to foreign currency in a bid to retain central bank reserves, which have fallen 17 percent over the last 12 months, to about $28 billion.

(Reporting by Sarah Marsh and Jorge Otaola in Buenos Aires and Nandita Bose in Chicago; Editing by Lisa Shumaker and Ken Wills)