November 23, 2017

Gov’t unlikely to access argentines’ bank data

Monday, June 27, 2016

Assets agreement with US not quite ‘reciprocal’

United States President Barack Obama is seen alongside Argentine President Mauricio Macri during his visit to Buenos Aires in March.
By Fermín Koop
Herald Staff

Government most likely not to access bank data of Argentines in States despite deal

As the whitewash bill is set to be approved this week, the government seeks to sign an assets deal with the United States to have access to data of the bank accounts of Argentines in the US — a way to put pressure on those holding undeclared funds to take part in the new tax amnesty.

But as the US will have full access to the bank data of their citizens living in Argentina, that probably won’t be the case for Argentina, as Washington limits the type of information given to foreign governments.

The US instituted in 2010 the Foreign Account Tax Compliance Act (best known as FATCA), which forces foreign banks to reveal US citizens with accounts over US$50,000. Those non-compliant institutions could be frozen out of US markets. More than 80 nations have agreed to the law so far, with Argentina as one of the exceptions.

Foreign financial institutions must report account numbers, balances, names, addresses, and US identification numbers. If one fails to comply with its obligations under FATCA, it may be subject to a 30 percent withholding tax on payments of US source income. That’s why more than 77,000 of them have already agreed to start handing over the data.

For a country to formally agree to FATCA, it has to sign an intergovernmental agreement (IGA) with the US, which Argentina now seeks to negotiate. Former AFIP head Ricardo Echegaray tried to sign a deal over the last few years but was only willing to do so if it was reciprocal — something the US rejected.

Without an IGA deal, FATCA presents a number of problems for financial institutions in Argentina as the information disclosure requirements are not necessarily permitted under data protection, confidentiality and bank secrecy laws.

Over the last few years, the Central Bank has asked banks to comply with FATCA despite the lack of an agreement between the two countries.

There are three main types of IGA deals a country can sign with the US to implement FATCA. One model says banks will send information to their own government, which will then send it on to the US Internal Revenue Service (IRS), while another says foreign institutions will instead send it directly to the IRS without going through the government.

But the exchange can also be reciprocal, at least in print. A type of IGA says the US will provide some information to the partner country about that country’s account holders in US financial institutions. Nevertheless, the US is only willing to sign that kind of deal with countries it’s already exchanging information with — not the case of Argentina.

“In order to have a reciprocal deal, the country needs to have a previously signed double taxation agreement with the US or another type of information exchange deal. Argentina doesn’t have either,” Marcos Torassa, accountant and partner at Torassa & O’Donnell, told the Herald. “Unless it signs a wider tax deal, Argentina can now only access to a non-reciprocal deal.”

Limited information

Even if the Macri administration is able to strike a reciprocal deal, the IGA deal limits the type of information to be handed out by the US. That’s why many non-US persons will continue to feel quite secure in holding accounts at US financial institutions, despite FATCA “reciprocity” with their home countries.

The US won’t provide information on cash accounts held by entities, including those that are resident in the FATCA partner country. At the same time, it won’t give data of the non-cash accounts, whether held by individuals or entities, even those that are resident in the FATCA partner country, unless the accounts earn so-called US-source income.

Furthermore, the US will not provide information to its “reciprocal” FATCA partner about the “controlling” persons of any entities having accounts in US financial institutions. This is so regardless of whether the entities are from the reciprocal partner country or from third countries, and even if those entities are owned and controlled by residents of the reciprocal partner country.

“It would be ideal to sign a reciprocal deal with the US. But it’s only willing to sign those agreements with countries with which it was already exchanging information. That’s why it only offered a non-reciprocal deal in the past, which Argentina refused,” lawyer and researcher for the Tax Justice Network, an international advocacy group, told the Herald.

“However, the deterrent effect of a potential agreement with the US may lead people to believe that it is only a matter of time before the US starts sending info to Argentina,” he added.

At the same time, large tax evaders will continue in the shadows even as Argentina starts to have access to information from the US, 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 US doesn’t care about helping Argentina to locate undeclared bank accounts of Argentines. 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. “Reciprocity with the US is impossible, you can’t force its banks to start looking at the funds of Argentines.”

Automatic exchange

As the US implemented FATCA and forces country to hand over bank data, it has rejected taking part in a similar initiative launched by the Organization for Economic Co-operation and Development (OECD) — which is pushing for countries to automatically start sharing fiscal data starting next year.

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.

The Macri administration has floated the idea of using the new OECD scheme to put pressure on tax evaders, claiming fiscal secrecy will be over when countries start to exchange data automatically. But tax experts have ruled out that argument.

Argentina will have to sign bilateral deals with the country with which it wishes to exchange information. 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 number of countries as Finance Minister Alfonso Prat-Gay claimed.

“The government intentionally leaked the information that it was negotiating an assets deal with the US, neglecting to tell the whole truth over reciprocity so to get more people to participate in the tax amnesty,” Torassa said.


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