We know that, although the USA – during the administration of Barack Obama in June 2010- has subscribed the multilateral agreement of the Organization for Economic Co-operation and Development (OECD) on Administrative Assistance in Tax Matters (“MCAA”), the fact is that they have not ratified it yet. Moreover, the distribution of the American Congress (republican majority) and Donald Trump in the White House make the ratification of the MCAA practically impossible for the next 4 years.
There are two systems for tax information exchange, CRS and FATCA. Let’s see:
- The Common Reporting Standard (“CRS”) is an automatic exchange system created by the OECD, under which more than 100 countries would start exchanging relevant tax information as of January 1st, 2017 in some cases.
The CRS system is a multilateral and completely reciprocal mechanism for the exchange of information in tax matters. The CRS and its comments were incorporated by MCAA reference which is a binding document between its signatory parties.
Under this MCAA, there are two ways of complying with the automatic standard: the jurisdictions can make a bilateral agreement or a multilateral MCAA agreement. However, the MCAA does not bind all its signatories to automatically exchange information; each party has the ultimate control over the information and over their relations with other countries. This means that the MCAA is still a bilateral agreement.
- The United States Regime named FATCA, Foreign Account Tax Compliant Act, was issued on December 16, 2009, without the support of the Republican Party in the House of Representatives, and on March 17, 2010 in the American Senate. FATCA entered into force on January 2013.
FATCA is basically an information regime that non-American financial entities must comply with. The new fact is the extraterritorial scope of the obligation since the agreement requires the banks to inform directly to the tax authorities in the US about country’s tax payers that hold open accounts in said institutions. If they do not participate in the regime, they are sanctioned (as a compliance incentive) with a 30% withholding over the American source results of the non-participant entity.
The G5 started to negotiate with the US the conditions for the implementation of FATCA after several suggests from financial institutions. This caused the publication of the Intergovernmental Agreement Model to improve tax compliance and apply FATCA. This agreement is known as IGA Model, with two modalities, IGA1 and IGA2.
Neither FATCA Law nor the regulations resulting from FATCA authorize a reciprocal information exchange with foreign tax authorities. However, Model 1, which authorizes a reciprocal exchange of information, was developed to induce foreign tax authorities to exchange information with the United States about people from that country with accounts abroad; not to make United States provide information.
It should be noticed that IGA 1 is based on some kind of information exchange agreement such as a double taxation agreement (CDI), or a treaty of information exchange (TIEA). According to these agreements, the United States is not bound to look through the structures (they do under the CRS). However, the signing states of these agreements do need to look through the structures in order to find American citizens. In that case, the information exchanged under FATCA is asymmetrical, given the fact that United States will not look through the legal structures in order to detect the ultimate beneficiary of the assets.
At present, approximately 73 jurisdictions have signed an IGA1 with the United States, 53 of whom are “reciprocal” and 20 are not. In addition, about 25 jurisdictions have reached a “substantial” agreement with the American treasury and are treated as if they had an IGA1. The viability of the implementation of a FATCA regime in Argentina depends exclusively on the existence of an IGA between our country and the United States. In this context, this agreement of information exchange was signed.
Finally, it should be noticed, with regard to FATCA, that the Republican Party’s platform proposes to completely abrogate the FATCA system, so now that the Republican Party is controlling both chambers and the White House, whether they will be able to definitely abolish FATCA and, in consequence, eliminate CRS remains to be seen.
In this context, on December 23, 2016, Argentina– through its Minister Prat Gay, who was forced to resign the following day- and the United States – through its Ambassador Noha Mamet – signed a bilateral information exchange agreement in tax matters, aiming to establish a mutual collaboration to face the tax issues in both countries.
The purpose of the treaty, established in its first article, is the mutual assistance through the exchange of information relevant to the compliance of tax local laws from both countries, and the follow up on tax issues. However, this differs from the real effects of the treaty. It would be strange that Argentina receives information under this agreement.
In accordance with said agreement, the information will be given at a party´s request. This means that a specific request needs to be made and not “fishing expeditions”. This stems from article 5 which describes the exchange process. First of all, there must be a requirement from one State to another. If specifically requested, the information can include, to the extent allowable under its domestic laws, depositions of witnesses and authenticated copies of original records.
In addition, article 2 gives the State the possibility of refusing to provide the information if it does not belong to its authorities or if it is not in possession of people under its territory. Among the exchangeable information is the information held by banks and other financial institutions, and information related to the ownership of companies, partnerships, trusts, and foundations.
An important aspect is treated in article 9 of the treaty, which establishes when a State can decline the request, besides the reasons already mentioned.
- Firstly, the requested Party shall not require information that it is not authorized to obtain under its own local laws.
- The applicant Party must have exhausted all means available in its territory to obtain the information before requesting it, except those that would give rise to disproportionate difficulties.
- The State can decline information that may disclose any trade, business, industrial, commercial or professional secret or trade process, or if the information includes confidential communications between a client and an attorney.
- Finally, the requested Party may decline a request for information if the disclosure of the information would be contrary to public policy.
The agreement includes a “Confidentiality” clause, which establishes that any information received by a Contracting Party under this Agreement shall be treated as confidential and may be disclosed only to persons or authorities in charge of the assessment, collection or enforcement of taxes covered by this Agreement. Such persons or authorities shall use such information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions. However, the Contracting Party may give its written consent for the information to be used for other purposes. This confidentiality clause persists even if the agreement is terminated.
The agreement shall enter into force one month after the date Argentina gives notice to the United States about the completion of the necessary internal procedures for the entrance into force of this Agreement. This means that in no way this agreement will allow to exchange information prior to December 31, 2017.
This agreement constitutes an improvement towards tax international transparency but does not have the substantial importance that media have been trying to attribute to it.