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William N. Perez
President Group PNL SA. UCA teacher. Director of IDEA
There has been a lot of talk about the recent agreement on automatic exchange of tax information between Argentina and the United States, but given that some regulatory aspects are not defined or the text of the Agreement published in the Official GazetteMuch of the information that has been circulating in the media has not been accurate enough.
With these limitations, we try provide more information which allows potentially interested parties to have more evidence in order to adequately define their tax situation.
How can the exchange of tax information be
There are three types of tax information exchange agreements:
1) Exchange of information upon explicit request.
This agreement requires the requesting country to provide the information a detailed request justifying that the country providing the information has sufficient elements to take the decision work to contribute. In practice this rarely works, as the country requesting the information cannot gather all the evidence necessary for the reporting country to carry out the necessary exchange task.
Two) Automatic exchange of information.
In this type of contract, the fiscal data are usually exchanged once a year, generally on 30 September of each year, and refer to the data of the previous calendar year. Should be symmetrical chords.i.e. both participating countries exchange the same information, usually financial. However, in those involving the United States, this is not the case, as the information provided by this country is more limited.
3) Exchange of spontaneous information In this type of exchange, countries define parameters to subsequently determine which operations are of fiscal interest for the counterparty, and then report them to the other intervening country. There is no defined frequency in these chords.
Scope of the agreement Argentina USA
Although, as mentioned, specific aspects of this agreement are being worked out, it can be argued that it will be no different from the approximately 100 automatic exchange of tax information agreements that the United States has entered into with various countries.
These agreements will generally respond to the IGA1 model (Intergovernmental Agreements) which are part of the FATCA (Foreign Account Tax Compliance Law).
In these signed agreements, the United States usually requires the information to include: bank account balances at the end of the year, all movements for the year, reporting of interest income, dividends and other results.
While the United States usually only provides: interest and dividends obtained in financial institutions and only those of US origin.
United States of America does not provide account balances at closing or bank movements. Nor does it report on real estate or companies.
Given this situation, the US will not report returns on stocks, corporate bonds, government bonds, etc., issued by entities domiciled outside of that country.
In turn, the United States would inform the dividend payment of a company domiciled in that country, but not its possession at closing. The same would happen with interest or income from corporate bonds, government bonds, etc., whose country of issue is the United States.
Not counting on bank account balances and movements, and counting only on their returns, will mean a additional work for AFIP, in order to identify the amount of these balances, with the conflicts and administrative-judicial discussions that this could entail, complicating the inspection activity of the Argentine collection agency. Subjects reached – final beneficiary
In general, automatic exchange of information agreements do not mention the information policy on beneficial ownership, therefore The United States would not be required report indirect controls.
In other words, the US would provide information down to the first level of financial holding company (example: it would report details of the company, trust or account holder trust). What are the prospects for change?
The United States has approved a registry of ultimate beneficiaries to be administered by FICEN (The Financial Crimes Enforcement Network).
This initiative aims to inform those individuals who directly or indirectly control more than 25% of the company or, if they have a minor shareholding, exercise significant influence. Today this registry is not operational.
The intention is that it works before the end of the term of the current US president.
If this record ever worked does not imply that, automatically, this information is included in the agreement signed between the Argentine Republic and the United States, but the chances that this could happen in the medium/long term increase.
For now, there appears to be no rush from US authorities for this to happen.
Duration of the agreement
Information will be provided by September 30 of each year based on the previous calendar year. The agreement was signed in 2022 and has been in force since January 2023.
Considering the experiences of other agreements signed by the United States with other countries, this country should report the financial annuities described above, as of September 30, 2023, referring to calendar year 2022. This point may be very relevant to some taxpayers who should consider the tax recycling option that the government would send to Congress.
The information Argentina provides to the United States may be more limited in the first year.
It remains to be seen whether the detailed aspects both governments are working on and the publication of the signed agreement will introduce any changes to this declaration. In principle it should work as described above.
conclusions
Argentina and the United States they are advancing a process that was started several years ago (Agreements on Explicit Request of the year 2016), to arrive at an automatic system for the exchange of tax information.
It is a natural part of a tax transparency process that occurs across much of the world.
This deal Will only affect Argentine taxpayers who have not declared “financial income” sourced/proven in the US (proceeds from sources outside the US will not be reported) and responding to assets deposited with financial institutions in the US.
The information at this stage should be limited to the first level of control of that financial holding and will not include real estate or corporate holdings, or bank balances (returns only).
It is likely that, in the long run, corporate or other structures, such as trusts, trusts, foundations, will be ignored and therefore the final beneficiary will be notified.
That won’t happen anytime soon, and the US will likely be one of the last countries to share this information.
Meanwhile, tools such as anti-money laundering will have to be (today a project to be sent to Congress). carefully vetted by potential interested parties. That is, even knowing that those goods and those incomes will then be exposed to the Argentine tax burden, which according to the World Bank is the highest in the world.
Both the possible anti-money laundering instrument and the existence or otherwise of corporate structures must be examined on the basis of the timing of application of the agreement described above. If the United States reported the year 2022 and there were no corporate structures holding bank accounts, recycling is a viable option to consider.
The greater or lesser success of laundering will depend on whether the authorities realize that Argentina needs to make the necessary structural changes that allow for the establishment of a reasonable, fair and progressive tax regime. In short, a regime that favors investment, growth and employability, thus integrating social sectors that are marginalized today due to a lack of clear and stable rules.
The lack of certainty and predictability is the worst enemy of a country’s well-being.
Source: Clarin
