The Argentine parliament recently approved a money bleaching bill. For Uruguay it has positive effects and "business opportunities", according to tax experts. In addition, it can serve as an example to the country that should adopt a similar path, they pointed out.
The Organization for Economic Co-operation and Development (OECD) itself encourages the implementation of these money bleaching programs and suggests different aspects to take into account (see attachment).
The Argentine project allows its taxpayers to continue to have money or goods abroad, but declared instead of "under the table" (ie evading taxes). The pressure for Argentines who have assets outside their country is that from 2017 their government will automatically receive data from other tax authorities. Uruguay will do so from 2018 (see attachment).
Uruguay is known as "the little box" of the Argentines. In addition to deposits, they have real estate and other investments. At the end of May, non-resident deposits in Uruguayan banks amounted to US USD 4,471 million, equivalent to 14.5% of total deposits. When the crisis of 2002, about half of the savings in banks was non-residents.
From these, USD 4.471 million of non-residents, 72% are from Argentina. That is, the Argentines had at the end of May USD 3,219.1 million in Uruguayan banks. In turn, in 2014 28% of foreign direct investment came from Argentina, said Fabián Birnbaum, the manager of the Tax Department of CPA Ferrere.
What can happen to these assets once there is money bleaching?
"Many people will declare what they have in Uruguay, but they will not leave because there is no obligation to repatriate," Professor Leonardo Costa told the International Tax and Financial Law professor at the Catholic University.
Along the same lines, Carlos Loaiza, director of the Postgraduate Program in International Taxation at the University of Montevideo. "It can stimulate" the bleaching of "real estate of Argentines in Uruguay" and "could bring the effect of “clean place”, since the Argentines can maintain their property in Uruguay and sleep peacefully," he told El País. As for the deposits, "does not seem to be an affectation," although "some Argentines are going to take money to return to their country's banks," he said. But it is currently a smaller portion of total deposits (10.4% of the total), he added.
Meanwhile, the CEO of Argentina's wealth management manager FDI – which also has a presence in Uruguay -, Mariano Sardáns told El País that "Argentines who have assets in Uruguay will declare them, as they are aware (or should know) that the country will exchange data (fiscal) automatically through the multilateral agreement. "
He added that "from our point of view, the bleaching of Argentina should not harm Uruguay at all."
For Birnbaum, "the effect on the economy is difficult to predict because it depends on several factors. If this has an effect it would mean that investments in Uruguay by Argentineans were not declared and from this law are intended to declare."
According to Costa, the bleaching in Argentina generates "business opportunities in Uruguay for the financial sector and nothing to say for real estate." In his opinion, some Argentines could turn to invest in real estate in Uruguay declaring that property and "managing their accounts from here."
Sardáns said that "what is buried" in Uruguay "is already" and "declare it does not mean that I take it". He added that there are Argentines "who for years have wanted to sell their properties in Punta del Este and have not been able to do so at the price they want" so they will remain there.
For Loaiza there may be a negative "indirect" effect that is "to the extent that this of Argentina is another action in the process of normalization and investments, allows them to return to invest in their country" and that implies "a diversion in the Potential investments that Uruguay could receive. "
He exemplified that an Argentine who has undeclared money in an account in Switzerland, before perhaps opted to invest in Uruguay as an intermediate option and now has the option to do it directly in Argentina.
Bleaching in Uruguay?
Regarding the possibility of Uruguay doing something similar, experts see it as a good idea, although the government has not said that it will follow Argentina's footsteps.
"Given the proximity of the application of automatic exchange of information (tax and financial), some countries have decided on programs for taxpayers to regularize their unfulfilled tax situations," said Birnbaum.
As an example, Brazil implemented the law 13,254 of January of this year that "established a special regime (Special Regime of Exchange and Tax Adjustment)", Colombia applies an "increasing annual rate, with the objective of regularizing the situation of the undeclared assets"and Chile implemented a" voluntary declaration program "that" allowed regularizing approximately USD 19 billion and raising USD 1,502 million in taxes, "he added.
For Costa, "it might be interesting" for Uruguay to make a similar law, although the 12% rate with which the income tax levied on the income of foreign capital assets of Uruguayans (real estate is not included) is not so great , Added.
Loaiza agreed that "it does not seem like a bad idea" and said that Uruguay "should" consider a similar law and next to it "give signs that taxation abroad will be clear." For example, that "the Heritage Tax is not going to be imposed on the assets of Uruguayans abroad as it happened in Argentina a few years ago," he added.
However, he indicated that "bleaching laws have their questions from the point of view of tax justice" because they give a "prize to the defaulter." But, "globally they have been accepted" and Uruguay has similar experiences when the departmental governments apply amnesties to the contributors, he added.
For Loaiza it is "more complex" to produce such a law in Uruguay because "conditions are not as in Argentina" where a lot of money was expelled during the previous government.
Uruguayans had USD 8,221 million in foreign banks by the end of 2015, according to data from the International Bank for Payments.
OECD Tailored Support
The OECD has a document on "voluntary (equity) disclosure programs" known as money bleaching. These "complement the rapid progress in the exchange of information and the ability of governments to detect evasion outside borders," the agency said.
These programs "are an integral part of a broader (tax) compliance strategy" and "should be considered as part of a variety of enforcement actions that tax administrations and governments take in order to encourage all taxpayers to fulfill their obligations, "the OECD said. In the document, the agency makes recommendations for its implementation and also details the programs in force in several countries.
Data exchange and banking secrecy in 2018.
Uruguay undertook last year that from September 2018 it will automatically exchange tax information with other tax authorities. This implies that the foreign administration will not require the data – as it is today -, but the General Tax Office (DGI) should send once a year the information of the bank accounts of foreigners in Uruguay.
Just as Uruguay will send data, it will also automatically receive information from Uruguayan accounts in foreign banks and will have more tools to pursue the IRPF to income from movable capital.
Uruguay also signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters on June 1, and this implies that the DGI should collaborate with a foreign tax when requested and vice versa.
To adapt to this, the Executive Power must send a bill that authorizes the lifting of banking secrecy of non-residents without prior judicial authorization. In the government is under debate if that uprising without passing through the Justice, also is given to the DGI for the residents in Uruguay, according to informed the Country the past 3 of June. The other thesis, is to first grant the express survey as required by international regulations for non-residents and then analyze with more time if the possibility is also granted to the DGI to residents, had indicated to El País government sources.
That debate is not yet resolved, the government sources said yesterday, adding that it will be in 2017 when it will be defined along with other aspects such as a bill to establish that tax evasion is a previous crime of money laundering.