Bank secrecy rules face ‘lethal blow’ in Uruguay
Gov’t sends bill to Congress to force banks to share account data automatically
Described by government officials as a “lethal blow” to bank secrecy, Uruguay has sent a bill to Congress that will force banks to automatically provide the DGI tax bureau information on the accounts held by individuals and companies, both Uruguayans and foreign citizens — eliminating the current need for a court order to access the data.
The move would put pressure on the US$3.3 billion held by Argentines in Uruguay.
According to Uruguay’s Central Bank, the funds held by Argentines account for 75 percent of all the money that foreign citizens have declared in the country. Over the last five years, the Argentine cash has grown 52 percent.
But the money counted in the official numbers only includes regular retail banks, leaving aside those who choose to manage their money through offshore banks located in Uruguay, financial entities located outside the country of residence of the depositor that provide many financial and legal advantages such as greater privacy.
Such entities will also be in the spotlight with the new bill, which would create a record of final beneficiaries as to know who are the real owners of the money. At the same time, the Tabaré Vázquez administration would steeply increase the taxes charge on offshore entities that work in Uruguay so as to discourage their transactions in the country.
There are about 1,900 foreign companies from tax havens working in Uruguay, according to DGI data. More than 1,600 were created for real-estate projects, many of them by Argentine and Brazilian citizens.
“The government wants to expel offshore entities from Uruguay. Tabaré Vázquez doesn’t want them in the country,” Guzmán Ramírez, lawyer at the Bergstein firm, told the Herald. “The move will mainly affect real estate Argentines have through offshore societies. Taxes are going to be much higher.”
The move follows stricter rules implemented since the former president José “Pepe” Mujica administration. Anyone who wants to open a bank account in Uruguay must explain where the money came from, have a legal residence in the country and valid identification. Foreigners who deposit up to US$5,000 have to provide a tax affidavit from their country of residence, while those who deposit more than US$10,000 have to include a customs affidavit if the money came from another country.
At the same time, banks have to report any deposit of more than US$3,000 to the Central Bank and not accept more than US$5,000 in cash for any transaction, among many rules that have been implemented in the country over the past few years.
“In the last few years, Uruguay started to implement changes to eliminate bank secrecy. This is the final one. The government not only wants to have good standards forbanks and offshore entities but also wants to be considered a leading country,” Juan Troccoli Fischer, accountant and partner at the Uruguayan law firm Solution Alliance, told the Herald.
Sharing data
Along with more than 70 countries including Argentina, Uruguay has signed the the Convention on Mutual Administrative Assistance in Tax Matters, which regulates information exchange between states regarding tax issues. It’s currently the most comprehensive instrument available for tax cooperation and exchange of information.
The main goal of the agreement is for tax data to be shared automatically, something Uruguay couldn’t do without the DGI having access to the bank’s data. The Tabaré Vázquez administration aims at starting to share data with the other countries that have signed the convention in 2018, handing over the 2017 fiscal information.
Speaking in Congress, Pablo Ferrari, under-secretary at Uruguay’s Economy Ministry, said the move aims at the country becoming “more open and transparent” to the rest of the world so to attract more investments in the country and export more goods. The country moved from being on black lists of financial organizations to being an important member, he said.
Not obeying the upcoming regulation for financial entities would lead to fines of up 1,000 times more than the maximum amount of a contravention, between US$107,000 and US$215,000.
Argentina and Uruguay signed a deal in 2014 to share fiscal information. But the exchange isn’t automatic and requires a fiscal investigation to have moved along in the courts. A new agreement would have to be signed for the automatic exchange of fiscal data to be implemented, tax experts agreed.
“Uruguay can’t obey the international standard with its current bank secrecy regulations. That’s the main reason of the bill. The DGI now access bank data only through a court order,” Troccoli Fischer said. “Argentines will stop considering Uruguay as a safe place to have undeclared funds.”
The bill would be passed before the end of the year and without any obstacles as the Tabaré Vázquez administration has a majority in Congress. Experts agreed it would encourage Argentines who have undeclared funds in Montevideo to take part in the tax amnesty law recently implemented by President Mauricio Macri.
The Macri administration aims at citizens and companies declaring assets held in the country and abroad through the new tax amnesty, which has a US$20 billion goal. Those 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 tax amnesty will be available until March 31, 2017 and allows pesos or foreign currency, real-estate, shares and bonds to be declared. Government officials and their relatives are excluded from the scheme, which also includes options to avoid paying any levy such as investing in government bonds and placing the assets in a mutual funds.
