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Tax notes april 10

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Diego Fraga

Argentina concluded an amnesty program on March 31st that resulted in $116.8 billion in previously undeclared assets being declared. Under the amnesty terms, Argentines could avoid prosecution by declaring non-real estate assets and paying a 10-15% penalty, or declaring real estate and paying a 5% penalty. Over 254,000 taxpayers participated, with 96% being individuals. The large amount of assets declared was attributed to Argentines having more offshore money than estimated due to the country's history of economic problems. However, some experts were skeptical of how long confidence in the program and government would last.

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Argentina Amnesty Nets $116.8 Billion in Previously Undeclared Assets Argentine residents declared $116.8 billion in previ- ously undisclosed assets and paid $9.6 billion in taxes and fees as part of an amnesty program that concluded on March 31, the Ministry of Finance said April 4. The MOF said in a statement that $93.3 billion of the assets declared were held outside the country. Indi- viduals made up 96 percent of the 254,700 taxpayers taking part in the amnesty, with entities representing the other 4 percent. In a press conference to announce the results of the amnesty, Finance Minister Nicol¨¢s Dujovne said they were a vote of confidence in both the government and in Argentina. Under the terms of the amnesty program, Argen- tines with unreported assets were able to avoid pros- ecution by declaring property other than real estate and paying a 10 percent fine up through December 31, 2016, with no requirement to repatriate the assets. The penalty for non-real-estate assets increased to 15 per- cent if payment was made between January 1 and March 31. Disclosures of real property required pay- ment of a 5 percent penalty. Penalties were either re- duced or eliminated for taxpayers who invested in spe- cific classes of Argentine government bonds. Dujovne said Argentina¡¯s amnesty was more suc- cessful, in terms of assets disclosed relative to total GDP, than that of any other country in recent years. Brazil, Chile, Mexico, and Indonesia have each carried out their own amnesty programs recently. Javier Canosa of Canosa Abogados said part of the reason Argentina¡¯s amnesty was more successful than those of other countries was because the total offshore assets held by Argentines had been vastly underesti- mated. ¡®¡®There was more money than expected,¡¯¡¯ he said. ¡®¡®Argentina has a very long history of defaults, [asset] seizing, nationalizations, so there was much more money than what was calculated.¡¯¡¯ Jorge Gebhardt of Aguirre Saravia & Gebhardt Abogados saw two reasons for the relative success of the Argentine amnesty compared to those carried out elsewhere. ¡®¡®First, the government was clever in not obliging taxpayers to bring the money back to Argen- tina. Second, the rate was reasonable,¡¯¡¯ which was not the case either in Mexico or in Brazil, he said. Confidence Could Wane Diego Fraga of Richards, Cardinal, T¨¹tzer, Zabala & Zaefferer Abogados said there is always a possibility that Argentines might start squirreling away their money again in offshore locations. ¡®¡®It will basically depend on Argentina¡¯s future tax policy,¡¯¡¯ he said. ¡®¡®President [Mauricio] Macri¡¯s administration promised a broad tax reform through which he would reduce distortive taxes. We hope he can move forward with the changes, but it will be difficult, if we look at the current political conditions.¡¯¡¯ The failure of the Argentine economy to respond to the combination of Macri¡¯s free-market and austerity policies as quickly as the president promised before his election in late 2015 has emboldened the political op- position. A call by labor unions for a nationwide strike on April 6 brought a large part of the country¡¯s economy to a standstill. Fraga attributed the relative success of Argentina¡¯s amnesty in part to the upheaval in the Argentine politi- cal landscape in recent years. In the November 2015 presidential election, voters rejected the handpicked candidate of Macri¡¯s predecessor, Cristina Fern¨¢ndez de Kirchner, whose populist policies were blamed by many for sending the economy into reverse. She has also been accused of allowing public corruption to run rampant in Argentina. Fern¨¢ndez de Kirchner was in- dicted by a federal judge on April 4 on charges of money laundering and public corruption related to a real estate company in Buenos Aires. She was already under indictment for fraud and public corruption con- nected with the awarding of public works projects in her home province of Santa Cruz. ¡®¡®The extreme changes in political environment in Argentina helped lots of taxpayers to take the crucial decision to regularize their tax situation,¡¯¡¯ Fraga said. Canosa was also not as optimistic about the signifi- cance of the amnesty for Argentina¡¯s future, in part COUNTRY DIGEST TAX NOTES INTERNATIONAL APRIL 10, 2017 ? 113 For more Tax Notes International content, please visit www.taxnotes.com. (C)TaxAnalysts2017.Allrightsreserved.TaxAnalystsdoesnotclaimcopyrightinanypublicdomainorthirdpartycontent.
because much of its success was driven by taxpayers¡¯ concern that their offshore assets would be disclosed through the automatic exchange of information. Ar- gentina has been expanding its tax treaty network in recent years with a special emphasis on agreements that include the exchange of information on request. It also signed the Multilateral Convention on Mutual Ad- ministrative Assistance in Tax Matters, as amended by the 2010 protocol, and the OECD¡¯s multilateral com- petent authority agreement on automatic exchange of financial account information. ¡®¡®It is a vote of confidence, but also people were very afraid of being caught because of the automatic exchange of information,¡¯¡¯ Fraga said. ¡®¡®I believe that when the dust settles, people will start hiding their money again.¡¯¡¯ John O¡¯Farrell of JP O¡¯Farrell Abogados said the amnesty would have been far less successful if not for the growing confidence in the government. He also said, however, that even if that confidence begins to erode under a future administration, it won¡¯t be as easy for Argentines to hide their money offshore because of the possibility of exposure under the automatic ex- change of information agreements signed by the gov- ernment and because many international financial in- stitutions have started rejecting deposits and investments that are not in compliance with the laws of the countries in which the account holder resides. Real Estate The head of the Argentine tax agency (AFIP) said during the press conference that taxpayers had also declared 110,000 parcels of domestic real estate and another 57,000 parcels located in foreign countries. ¡®¡®It is as if 220 developments of 500 houses each came to light through the length and breadth of the country,¡¯¡¯ said AFIP Commissioner Alberto Abad. Canosa said that much of the real estate disclosed in the amnesty is business property that was held in the names of individuals to avoid the income tax pay- able by a company when the property is eventually sold. ¡®¡®If you own a property through a company, you have to pay 35 percent income tax when you sell it,¡¯¡¯ Canosa said. ¡®¡®Now if you own it individually, you pay a 1 percent property transfer tax, so because the am- nesty allowed [you] to pierce the corporate veil and declare real estate owned by companies directly in the name of the controlling individual, you could effec- tively save the 30 percent income tax.¡¯¡¯ Canosa said the 5 percentage point difference was attributable to the penalty owed on the declaration of real estate under the amnesty program. O¡¯Farrell said the large numbers of Argentina real estate parcels that had gone undisclosed was partly be- cause there is no national registry for property records, which he said are kept by each province and include information of all the properties that an individual holds in each jurisdiction. ¡®¡®The problem was that there was no automatic exchange of information between the national tax office and the provincial tax offices and, consequently, the national tax office had to do the in- vestigation on a case-by-case basis,¡¯¡¯ he said. ¡®¡®This means that they only did it when they believe an indi- vidual was hiding one or more properties and only in those jurisdictions that the tax bureau thought the indi- vidual could have a property not declared.¡¯¡¯ Bond Option Abad said only 2 percent of the taxpayers entering the amnesty took advantage of the program to reduce or eliminate penalties through the purchase of govern- ment bonds. Fraga said many taxpayers decided that the bond option was not as appealing as other alternatives, espe- cially because of a requirement that the bonds be held for either four or seven years. O¡¯Farrell agreed that the bond option was not very attractive from an investment point of view, because of the low yield offered on the fixed income instruments. ¡®¡®The individual could make a higher profit investing in other Argentine bonds or other investments in Argen- tina that compensate for the amnesty cost and [which] also had the advantage that [the investor] did not have to immobilize the funds for a long period as was the case if he or she chose the specific Argentine bonds,¡¯¡¯ O¡¯Farrell said. ? William Hoke, Tax Analysts. Email: william.hoke@taxanalysts.org ARGENTINA 114 ? APRIL 10, 2017 TAX NOTES INTERNATIONAL For more Tax Notes International content, please visit www.taxnotes.com. (C)TaxAnalysts2017.Allrightsreserved.TaxAnalystsdoesnotclaimcopyrightinanypublicdomainorthirdpartycontent.

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Tax notes april 10

  • 1. Argentina Amnesty Nets $116.8 Billion in Previously Undeclared Assets Argentine residents declared $116.8 billion in previ- ously undisclosed assets and paid $9.6 billion in taxes and fees as part of an amnesty program that concluded on March 31, the Ministry of Finance said April 4. The MOF said in a statement that $93.3 billion of the assets declared were held outside the country. Indi- viduals made up 96 percent of the 254,700 taxpayers taking part in the amnesty, with entities representing the other 4 percent. In a press conference to announce the results of the amnesty, Finance Minister Nicol¨¢s Dujovne said they were a vote of confidence in both the government and in Argentina. Under the terms of the amnesty program, Argen- tines with unreported assets were able to avoid pros- ecution by declaring property other than real estate and paying a 10 percent fine up through December 31, 2016, with no requirement to repatriate the assets. The penalty for non-real-estate assets increased to 15 per- cent if payment was made between January 1 and March 31. Disclosures of real property required pay- ment of a 5 percent penalty. Penalties were either re- duced or eliminated for taxpayers who invested in spe- cific classes of Argentine government bonds. Dujovne said Argentina¡¯s amnesty was more suc- cessful, in terms of assets disclosed relative to total GDP, than that of any other country in recent years. Brazil, Chile, Mexico, and Indonesia have each carried out their own amnesty programs recently. Javier Canosa of Canosa Abogados said part of the reason Argentina¡¯s amnesty was more successful than those of other countries was because the total offshore assets held by Argentines had been vastly underesti- mated. ¡®¡®There was more money than expected,¡¯¡¯ he said. ¡®¡®Argentina has a very long history of defaults, [asset] seizing, nationalizations, so there was much more money than what was calculated.¡¯¡¯ Jorge Gebhardt of Aguirre Saravia & Gebhardt Abogados saw two reasons for the relative success of the Argentine amnesty compared to those carried out elsewhere. ¡®¡®First, the government was clever in not obliging taxpayers to bring the money back to Argen- tina. Second, the rate was reasonable,¡¯¡¯ which was not the case either in Mexico or in Brazil, he said. Confidence Could Wane Diego Fraga of Richards, Cardinal, T¨¹tzer, Zabala & Zaefferer Abogados said there is always a possibility that Argentines might start squirreling away their money again in offshore locations. ¡®¡®It will basically depend on Argentina¡¯s future tax policy,¡¯¡¯ he said. ¡®¡®President [Mauricio] Macri¡¯s administration promised a broad tax reform through which he would reduce distortive taxes. We hope he can move forward with the changes, but it will be difficult, if we look at the current political conditions.¡¯¡¯ The failure of the Argentine economy to respond to the combination of Macri¡¯s free-market and austerity policies as quickly as the president promised before his election in late 2015 has emboldened the political op- position. A call by labor unions for a nationwide strike on April 6 brought a large part of the country¡¯s economy to a standstill. Fraga attributed the relative success of Argentina¡¯s amnesty in part to the upheaval in the Argentine politi- cal landscape in recent years. In the November 2015 presidential election, voters rejected the handpicked candidate of Macri¡¯s predecessor, Cristina Fern¨¢ndez de Kirchner, whose populist policies were blamed by many for sending the economy into reverse. She has also been accused of allowing public corruption to run rampant in Argentina. Fern¨¢ndez de Kirchner was in- dicted by a federal judge on April 4 on charges of money laundering and public corruption related to a real estate company in Buenos Aires. She was already under indictment for fraud and public corruption con- nected with the awarding of public works projects in her home province of Santa Cruz. ¡®¡®The extreme changes in political environment in Argentina helped lots of taxpayers to take the crucial decision to regularize their tax situation,¡¯¡¯ Fraga said. Canosa was also not as optimistic about the signifi- cance of the amnesty for Argentina¡¯s future, in part COUNTRY DIGEST TAX NOTES INTERNATIONAL APRIL 10, 2017 ? 113 For more Tax Notes International content, please visit www.taxnotes.com. (C)TaxAnalysts2017.Allrightsreserved.TaxAnalystsdoesnotclaimcopyrightinanypublicdomainorthirdpartycontent.
  • 2. because much of its success was driven by taxpayers¡¯ concern that their offshore assets would be disclosed through the automatic exchange of information. Ar- gentina has been expanding its tax treaty network in recent years with a special emphasis on agreements that include the exchange of information on request. It also signed the Multilateral Convention on Mutual Ad- ministrative Assistance in Tax Matters, as amended by the 2010 protocol, and the OECD¡¯s multilateral com- petent authority agreement on automatic exchange of financial account information. ¡®¡®It is a vote of confidence, but also people were very afraid of being caught because of the automatic exchange of information,¡¯¡¯ Fraga said. ¡®¡®I believe that when the dust settles, people will start hiding their money again.¡¯¡¯ John O¡¯Farrell of JP O¡¯Farrell Abogados said the amnesty would have been far less successful if not for the growing confidence in the government. He also said, however, that even if that confidence begins to erode under a future administration, it won¡¯t be as easy for Argentines to hide their money offshore because of the possibility of exposure under the automatic ex- change of information agreements signed by the gov- ernment and because many international financial in- stitutions have started rejecting deposits and investments that are not in compliance with the laws of the countries in which the account holder resides. Real Estate The head of the Argentine tax agency (AFIP) said during the press conference that taxpayers had also declared 110,000 parcels of domestic real estate and another 57,000 parcels located in foreign countries. ¡®¡®It is as if 220 developments of 500 houses each came to light through the length and breadth of the country,¡¯¡¯ said AFIP Commissioner Alberto Abad. Canosa said that much of the real estate disclosed in the amnesty is business property that was held in the names of individuals to avoid the income tax pay- able by a company when the property is eventually sold. ¡®¡®If you own a property through a company, you have to pay 35 percent income tax when you sell it,¡¯¡¯ Canosa said. ¡®¡®Now if you own it individually, you pay a 1 percent property transfer tax, so because the am- nesty allowed [you] to pierce the corporate veil and declare real estate owned by companies directly in the name of the controlling individual, you could effec- tively save the 30 percent income tax.¡¯¡¯ Canosa said the 5 percentage point difference was attributable to the penalty owed on the declaration of real estate under the amnesty program. O¡¯Farrell said the large numbers of Argentina real estate parcels that had gone undisclosed was partly be- cause there is no national registry for property records, which he said are kept by each province and include information of all the properties that an individual holds in each jurisdiction. ¡®¡®The problem was that there was no automatic exchange of information between the national tax office and the provincial tax offices and, consequently, the national tax office had to do the in- vestigation on a case-by-case basis,¡¯¡¯ he said. ¡®¡®This means that they only did it when they believe an indi- vidual was hiding one or more properties and only in those jurisdictions that the tax bureau thought the indi- vidual could have a property not declared.¡¯¡¯ Bond Option Abad said only 2 percent of the taxpayers entering the amnesty took advantage of the program to reduce or eliminate penalties through the purchase of govern- ment bonds. Fraga said many taxpayers decided that the bond option was not as appealing as other alternatives, espe- cially because of a requirement that the bonds be held for either four or seven years. O¡¯Farrell agreed that the bond option was not very attractive from an investment point of view, because of the low yield offered on the fixed income instruments. ¡®¡®The individual could make a higher profit investing in other Argentine bonds or other investments in Argen- tina that compensate for the amnesty cost and [which] also had the advantage that [the investor] did not have to immobilize the funds for a long period as was the case if he or she chose the specific Argentine bonds,¡¯¡¯ O¡¯Farrell said. ? William Hoke, Tax Analysts. Email: william.hoke@taxanalysts.org ARGENTINA 114 ? APRIL 10, 2017 TAX NOTES INTERNATIONAL For more Tax Notes International content, please visit www.taxnotes.com. (C)TaxAnalysts2017.Allrightsreserved.TaxAnalystsdoesnotclaimcopyrightinanypublicdomainorthirdpartycontent.