Procter & Gamble will not lay off staff in Argentina due to tax probe - source

By Sarah Marsh

BUENOS AIRES (Reuters) - Procter & Gamble Co (PG.N), the world's No. 1 household products maker, has no plans to lay off staff in Argentina despite having to suspend commercial operations in the country while it grapples with a tax fraud probe, a source familiar with the matter said on Tuesday.

P&G employees are showing up for work and carrying out tasks not related to the sale and purchase of goods, while the company continues talks with the Argentine tax authority, AFIP, in an attempt to defuse the situation, the source told Reuters.

Argentina accused P&G on Sunday of hiding income and over-billing $138 million in imports to get money out of the South American country, which has stringent capital controls in place to protect its fast-dwindling foreign reserves.

Argentina's leftist government, which favours strong intervention in the private sector, has publicly accused a host of major foreign companies such as global grains exporters Bunge and Cargill [CARG.UL] of evading taxes over the past few years.

Such investigations are usually resolved with a hefty fine, with the companies resuming business as usual before any real toll is taken on operations or profits.

"It is commercial operations that have been stopped. The company cannot import, export or sell its products. But that does not affect day-to-day work at P&G," the source said. "Employees continue to work and there are no thoughts of firing anyone."

Many other companies including foreign giants such as Anglo-Dutch Unilever (ULVR.L) supply Argentine supermarkets with some of the same household goods as P&G, meaning that even if the tax probe drags on, there is little risk of shortages.

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

Cincinnati, Ohio-based P&G, maker of Gillette razors and Tide detergent, has more than 1,200 employees in Argentina, where it runs three manufacturing plants and two distribution centers.

The company's Argentine operations contribute about 1 percent to its overall sales. P&G reported net sales of $83.1 billion (51.93 billion pounds) in 2014.

Argentina's cash-strapped government has been ramping up state intervention in the economy, Latin America's third largest, 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 a 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.

(Additional reporting by Hugh Bronstein and Eliana Razsewski; Editing by Peter Galloway)