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Experts rule out ‘end’ of fiscal secrecy

Finance Ministry Alfonso Prat-Gay is seen in a file photo.
Finance Ministry Alfonso Prat-Gay is seen in a file photo.
Finance Ministry Alfonso Prat-Gay is seen in a file photo.
By Fermín Koop
Herald Staff

Government claims tax evaders face ‘last chance’ before automatic data exchange kicks in

The national government is trying to convince tax evaders to take part in the new tax amnesty by claiming there will be nowhere to hide starting next year, as countries will begin sharing fiscal data automatically. Nevertheless, tax experts broadly dismiss the argument, claiming the scheme will be limited and with many loopholes.

Now under debate in Congress, the Macri administration launched a whitewash bill, expecting to collect US$20 billion. If passed, citizens or companies who declare less than US$305,000 won’t pay any levy, while those legalizing up to US$800,000 would pay five percent, reaching 10 percent when declaring more than that.

The initiative had been floated right after Macri took office, even with the drafting of a bill. But then it was ruled out. Trying to take advantage of the shock effect on tax evaders due to the Panama Papers scandal, the government started looking at the idea again and drafted a new bill. Argentines are estimated to have about US$400 billion stashed in tax havens.

Finance Minister Alfonso Prat-Gay has repeatedly said this will be the “last chance” for tax evaders to declare their funds, as they won’t be able to “hide their money any more” starting next year — when Argentina will start having access to information of “bank accounts of Argentines from 48 countries.”

Nevertheless, that won’t be the case, experts agree.

“It’s a hoax. Fiscal havens are stronger than ever and still growing. The big players will always find a way to hide their funds,” Juan Valerdi, La Plata University economist specialized on money laundering, told the Herald. “Before any new deal is signed, companies and individuals will quickly hide under new shells and nobody will find them.”

The Organization for Economic Co-operation and Development (OECD) is pushing for a new scheme for countries to start sharing fiscal data automatically, replacing the current system through which information is only exchanged upon requirement. A country can now ask for tax data when an investigation with sufficient evidence has been launched by a court. Even then, the other country can dismiss the request.

A group of 48 OECD members signed in 2014 the pledge to implement the new scheme, with a small group of early adopters even committing to launching the first information exchange by 2017, including Argentina. Others, such as Switzerland, are expected to follow in 2018. But it won’t be such a quick process.

Countries which wish to get information from the assets held by Argentines in another nation will have to sign a bilateral deal. Only when that’s done, will data be shared once a year. That means the conditions won’t be met for Argentina to have access to information from a wide spectrum of countries as Prat-Gay claimed

“Exchanges will take place only when countries sign all relevant treaties, meet all requirements and choose each other, in what some call the “dating system. It’s just like Tinder,” Andrés Knobel, lawyer and researcher for the Tax Justice Network, an international advocacy group, told the Herald.

“Argentina will try to get info from all countries but we don’t know yet with whom it will exchange data,” he added.

At the same time, large tax evaders will continue in the shadows despite information being shared automatically, tax experts said. Offshore entities can be created in ways that make it virtually impossible to figure out who is behind the structure because there are so many corporate layers.

“The new scheme won’t increase the possibility of finding tax evaders. The current system is flawless,” Jorge Gaggero, economist and tax expert, told the Herald. “Assets are hidden in a system that works like a Russian doll, you can never reach the real owner. If somehow you do, tax authorities move so slow that you can escape unscathed.”

A place to hide

Not only will it take a long time for the new scheme to kick in, but also not everybody will take part. The United States didn’t sign the pledge as it has its own system to uncover US money in offshore accounts.

Under the Foreign Account Tax Compliance Act, also known as FATCA, foreign financial institutions, including those in Argentina, are required to report US clients they suspect of trying to conceal assets. If they don’t comply, they could lose their banking license in the US.

The US argues that since its programme is similar to the one implemented by the OECD it doesn’t need to join. Instead, it said it plans to sign bilateral deals with other countries, something that hasn’t happened with many yet. In the interim, the US is not providing countries with the kind of data it is requesting from them.

Switzerland agreed to join the OECD scheme and has already signed joint declarations with some countries such as Japan and Canada. Nevertheless, Gaggero and Valerdi said Swiss banks are offering their clients to continue hiding their assets when the automatic exchange of information starts — keeping their assets in Asia.

“Swiss banks are offering their clients to continue managing their illegal accounts outside the country in less vulnerable places like Hong Kong and Singapur,” Gaggero said. “The automatic exchange won’t be effective unless all countries take part on it and that’s never going to happen.”

A limited effect

The Tax Justice Network is asking for public registries of who really owns legal structures, claiming it would be the only way to sort out the obstacles used by tax evaders to hide their assets. If the automatic exchange of information is implemented instead of that, the new OECD scheme could end up being a “bad thing,” the group said.

“If the new scheme serves as a replacement or an alternative to data that should have been public, such as information on who really owns a company or trust, or where multinational companies have operations, or secret tax rulings to allow a company to escape taxes abroad then it could represent a step backwards,” a recent post on the TJN website reads.

Complementing the automatic exchange of information, central registries are the best way of of getting beneficial ownership for all types of entities and arrangements, such as trusts created under the laws of a country or operating in that country, the Tax Justice Network said. Such registries would be the best way to ensure access not only by authorities that need the information, but also by regulated entities such as banks which use this for their customer due diligence and by society at large.

“We identified loopholes that prevent the real effectiveness of the automatic information exchange for someone sophisticated enough,” Knobel said. British author and tax researcher Nicolas Shaxson agreed and told the Herald the system is “still patchy” and claimed there will be “big gaps.”

@ferminkoop

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