As published on step.org/industry-news, Wednesday 28 July, 2021.
A new OECD report on tax transparency in Latin America estimates that EUR900 billion of the region's wealth is held offshore.
The cited figure comes from the Economic Commission for Latin America and the Caribbean (ECLAC), which notes it is considerably higher than the average for Asia (4 percent), Europe (11 percent) or the United States (4 percent), and leads to annual revenue losses of EUR19 billion for the region due to tax evasion and aggressive tax planning. Revenues lost due to tax non-compliance in the region were estimated at 6.1 percent of the regional gross domestic product in 2018, with income tax (3.8 percent) and value added tax (2.3 percent) being the most affected.
The OECD report notes that several of its governments are fighting back by adopting international automatic exchange of information (AEOI). Nine – Brazil, Chile, Dominican Republic, Ecuador, El Salvador, Guatemala, Panama, Peru and Uruguay – have signed the OECD's Convention on Mutual Administrative Assistance in Tax Matters. Six out of eight Latin American jurisdictions reviewed by OECD under the second round of peer reviews – Brazil, Costa Rica, Dominican Republic, Peru, Chile and Uruguay – were rated largely compliant on exchange of tax information on request; and nine – Argentina, Colombia, Mexico, Brazil, Chile, Costa Rica, Panama, Uruguay and Peru – already participate in AEOI. Ecuador is committed to start its first AEOI exchanges in 2021, but Bolivia, the Dominican Republic, El Salvador, Guatemala, Honduras and Paraguay have not yet agreed a date for their first automatic exchanges.
The region has been a net sender of tax information requests between 2014 and 2020, with 3,949 requests sent and 2,343 requests received. 'Commitment to exchange of information is high in Latin America, with 81.2 per cent of countries surveyed (13 countries) giving EOI a high or very high priority', says the report. Only 18.8 per cent of respondents (three countries) consider EOI to be a medium priority, and no country deems EOI as having no priority within their development agenda.
However, beneficial ownership determination mechanisms are still in their early stages. Only six countries (Argentina, Brazil, Costa Rica, Paraguay, Peru and Uruguay) already require beneficial ownership information to be centralised in dedicated registers, while Colombia and Ecuador are in the legislative process for the approval of central registers. Six of the eight Latin American countries that had been fully reviewed in the second round of evaluations of the exchange of information on request standard by the end of 2020 had gaps in their beneficial ownership legal frameworks, with only two countries not receiving any recommendation for improvement. Chile, Costa Rica, Panama, Peru, and especially Guatemala, were rated as needing improvement, while Brazil and the Dominican Republic were rated as largely compliant.
The implementation of the AEOI standard is already having a significant impact in the region, says the report. Taxpayers are coming forward to disclose formerly concealed wealth in response to voluntary disclosure programmes (VDPs) launched prior to the first AEOI exchanges. Argentina, Brazil, Chile, Colombia and Peru have launched VDPs in connection to AEOI, which have helped to identify at least EUR12 billion in additional revenue.
However, the use of AEOI data for non-tax purposes – a development being enthusiastically promoted by the OECD – has not been widely adopted in Latin America, says the report. Only Argentina has indicated that it is pursuing the idea. It has sent requests to 84 jurisdictions for the use of Common Reporting Standard (CRS) information for other purposes. So far, eight countries have given Argentina their unconditional authorisation, while 11 countries gave conditional authorisation and six refused to authorise it. Argentina also reported that specific authorisations related to information exchanged on request have all been granted by the sending jurisdiction with the exception of three cases: money laundering, criminal and customs matters.