November 25, 2014
Gov’t to sign fiscal deal with Switzerland
Allowing companies to avoid double taxation in Argentina and in Switzerland and sharing fiscal information between both countries will be the two main components of the agreement the AFIP tax bureau is due to sign with Switzerland in the next few days.
Even though there’s not a fixed date yet, tax experts and sources at the Swiss Embassy told the Herald that it’s only a matter of days until head of AFIP Ricardo Echegaray travels to Berna, Switzerland to sign the agreement, which will have to be passed by the Congress of both countries in order to be fully operational, something that is likely to happen next year.
“The agreement has the objective of eliminating double taxation on income and capital, especially on dividends, interests and royalties,” Switzerland Ambassador in Argentina Johannes Matyassy, told the Herald. “It restores the legal framework on double taxation after Argentina decided in 2012 to not continue applying the agreement.”
The agreement will exempt companies from Switzerland and Argentina from paying taxes such as income tax and personal property tax in both countries simultaneously. Argentina is the second most important investment destination in Latin America for Swiss companies, investing more than 5.7 billion euros in 2011. Almost 30,000 people are employed by Swiss firms in the country.
Nevertheless, what matters most to the AFIP tax bureau is the fiscal information that will be shared between both countries. The exchange won’t be automatic and information can only be asked for when a fiscal investigation with sufficient proof has been started in the courts. Argentines are estimated to have US$400 million in tax heavens such as Switzerland, tax experts told the Herald.
“It’s a more limited data exchange that requires fulfillment of several rules, which if not followed can lead to the information request being rejected,” César Litvin, tax expert and head of the Argentine Tax Institute, told the Herald. “Switzerland wants to avoid AFIP asking for non-relevant information and chose the exchange not to be automatic.”
This doesn’t mean that the automatic information exchange couldn’t be achieved in the future. While tax experts estimate that change won’t happen in at least five years, Ambassador Matyassy told the Herald that a transition won’t be considered until “it’s globally accepted and an international regulation about it is applied.”
Tax experts anticipate that there will be a large number of information requests filed by AFIP after the agreement is passed by Congress. But if they are not sufficiently justified and the conditions not fulfilled, the request can be rejected by Switzerland. That happened last year with Uruguay, a country with which AFIP signed a similar agreement.
“In previous agreements such as with Uruguay, AFIP took advantage of this tool to intensify controls so I expect the same to happen in this case,” Andrés Edelstein, tax expert at Price Waterhouse Cooper, told the Herald. “Switzerland has always been one of the favourite tax heavens of investors worldwide and I imagine Argentina is not the exception.”
An old agreement
The new agreement with Switzerland replaces an older one signed between both governments in 1997 that was cancelled by Argentina in 2012. Among the reasons behind the cancellation, was that the Fernández de Kirchner administration wanted to include an information exchange clause in the new agreement while AFIP had reported a loss in tax collection due to the characteristics of the old agreement, according to tax experts.
“The government cancelled the agreement because there were some interpretation problems that led to AFIP lossing some of its tax collection. Nevertheless, all those issues were solved in the new agreement,” Jorge Gebhardt, tax expert of the firm Aguirre Saravia & Gebhardt, told the Herald. “We’ll now have to wait for theCongresses of both countries to pass it in order to be fully operational, something that won’t happen until next year.”
In the last few years, AFIP has intensified the signature of double taxation agreements, having signed the last one with Spain in March, as well as having subscribed to an agreement with the Organization for Economic Co-operation and Development (OECD), which allows it to be part of a 35-country network that can exchange relevant fiscal information.
Nevertheless, double taxation agreements with no automatic information exchange are also questioned by some tax experts for only benefiting developed countries and not developing countries, whose tax collection drops by allowing foreign companies to avoid paying several taxes.
“Actions taken by AFIP contrast with recent acknowledgment of the OECD, G8 and G20 of the grave limitations that the traditional fiscal information exchange agreements have,” Jorge Gaggero, tax expert at the Finance and Economy Centre for the Development of Argentina (CEFID-AR), told the Herald.
“OECD and G20 have decided to move forward to a new global standard based on automatic information exchange agreements, which would be the only useful ones for countries such as Argentina,” he said.
At the same time, in an article published in Voces del Fénix, the magazine of the Plan Fénix economic group, former national tax director Antonio Hugo Figueroa said that double taxation agreements imply a “fiscal sacrifice for developing countries, which is not justified by the supposed increased investments that come thanks to this kind of agreements.”@ferminkoop