December 14, 2017

‘Negotiations continue’

Sunday, May 11, 2014

Government seeks automatic tax deal with Switzerland

Head of AFIP tax bureau Ricardo Echegaray (centre) signs the initial agreement with Switzerland State Secretary for International Financial and Tax Matters Jacques de Watteville (left) in March.
By Fermín Koop
Herald Staff

The gov’t wants to have a more direct access to fiscal data, could be signed in two years

As 47 countries, including Argentina and Switzerland, pledged this week to start sharing financial information automatically to end with the use of bank secrecy for tax evasion, the federal government is hoping to implement such methodology in the tax agreement signed with Switzerland last March. Nevertheless, the change will not come in at least two years, according to tax experts, after negotiations between both governments.
“There’s no agreement over an automatic exchange of fiscal information yet. Negotiations are currently going on and several aspects have already been decided,” Switzerland Ambassador in Argentina Johaness Maytassy, told the Herald. “Switzerland will have to decide if it subscribes to the final result of the negotiations and, if that happens ,then negotiations with Argentina will start.”

The government signed in March a deal, which still has to be passed by the Congress, to allow companies to avoid double taxation in Argentina and in Switzerland and to share fiscal information between both countries. Nevertheless, 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.

But that could change as Switzerland pledged this week together with 46 countries to share financial information automatically on an annual basis with other governments, including taxpayers’ bank balances, dividends, interest income and sales proceeds used to calculate capital gains tax.

“Governments and international agencies have been pressuring Switzerland to agree to this and now we see the results. We’ll have to wait two years for the automatic information exchange to start,” César Litvin, tax expert and head of the Argentina Tax Institute, told the Herald. “It’s something to think on the long-term.”

Although this week’s signatories did not officially commit to a specific deadline, a group of early adopters is aiming to have exchange of information up and running by 2017 using tax data collected from the end of 2015. Banks will have a year to adapt their information technology systems while governments will have to modify their tax laws. Foot-draggers will be spared formal sanctions, but compliance will be monitored through international peer reviews.

“The agreement is on the right path but the political will of the governments will establish if it can be implemented worldwide. It’s an initiative boosted by developed countries which are suffering due to the financial crisis,” Jorge Gaggero, tax expert at the Finance and Economy Centre for the Development of Argentina, told the Herald. “Tax heavens such as Switzerland argue that all countries have to subscribe to the agreement in order to start sharing information automatically. Everybody has to have the same rules.”

Negotiations to come

AFIP tax bureau celebrated Switzerland’s pledge by saying in a press release that the “information exchange clause of the agreement signed with the government foresees the commitment of Switzerland to implement the automatic information exchange.” Nevertheless, that’s not completely accurate.

The agreement, which the Herald had access to, doesn’t force either of the signing countries to implement an automatic information exchange but at the same time it doesn’t forbids it. “It’s understood that Article 25 (which refers to the information exchange) doesn’t obligate the contracting states to exchange information automatically or spontaneously,” the agreement says.

At the same time, both governments said on the agreed minutes of the agreement that a round of consultations will be carried on if the automatic exchange of information is implemented as a new world standard. The legal characteristics of the exchange and the content of it would be discussed in such meetings.

“It has been agreed that, should international developments lead to the general acceptance and effective implementation of automatic exchange of information as a new world standard, the contracting states shall promptly consult one another with a view toconclude an agreement regarding the automatic exchange of defined categories of income and of capital and settling appropriate procedures,” the agreed minutes state.

But implementing such an agreement won’t come without any consequences. Pressure would probably come to Argentines who have undeclared money in Switzerland, tax experts estimate, as AFIP will start looking on the details of their foreign accounts. Argentines are estimated to have US$400 million in tax heavens such as Switzerland.

“Switzerland has always been the refugee of undeclared money and allowing an automatic information exchange would have serious consequences in the countries that send money to Switzerland,” Andrés Edelstein, tax expert at Price Waterhouse Cooper, told the Herald. “There’s a lot to figure out yet but Switzerland is running out of time.”

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