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After weeks, some press versions emerged that mentioned the automatic exchange of information between Argentina and the United States. as a reality or as a question that was about to materialize.
With the aim of shedding a little light on the subject, in the following newsletter we will clarify what the current situation of each of the countries is regarding the automatic exchange of information and how the agreement that exists today between both countries regarding this affair.
What happens in the USA?
The USA. They promulgated in 2010 the so-called FATCA (Foreign Account Tax Compliance Act) which came into effect in 2013, the main objective of which is to reduce tax evasion of earnings received by US people. or entities where American citizens have a substantial interest in offshore banks, which were not subject to reporting to the US Internal Revenue Service (IRS).
What options can be given considering the FATCA law at the country or financial institution level:
1. AN IVEL PAIS
At the country level two situations can occur:
A. That only a Tax Information Exchange Agreement (TIEA) exists between jurisdictions without having signed an IGA (“Intergovernmental Agreement” to be defined later), defining the TIEA as a bilateral agreement, negotiated and signed between two countries to establish a formal regime for the exchange of tax information.
B. That in addition to having signed a TIEA between two jurisdictions, these in turn have entered into with the United States. An intergovernmental agreement or IGA for its acronym in English, in fact the signing of the TIEA is required as a previous step to the signing of an IGA.
The IGA can be defined as an agreement between the USA. or the Treasury Department and a foreign government for the implementation of FATCA through the reporting by foreign financial institutions (FFI) of information from their account holders.
2. AT THE FINANCIAL INSTITUTION LEVEL
To comply with the FATCA law, which requires FFIs to report financial information to account holders who are subject to US tax payment to the IRS. Whether they are the owners of the same or have substantial control over a foreign entity that owns said account, the FFI can take two paths:
A. The Financial Institution can register with the IRS to comply with the FATCA Report, called FFI Agreements as long as the jurisdiction to which said FFI belongs has not entered into an IGA with the USA; or
B. Comply with the local laws of the jurisdiction to which the FFI belongs, thus complying with the IGA signed between the jurisdiction of the FFI and the USA.
If an FFI does not meet these requirements and is not exempt from doing so because it is considered a compliant FFI, that is, those that present a relatively low risk of being used for tax evasion or are exempt from FATCA withholdings, certain payments made from the US .UU. FFIs will be subject to a 30% withholding, effectively imposing a ban on doing business with the US. and even high penalties for FFIs that do not collaborate, considering themselves recalcitrant.
What types of IGA are there?
Starting with the implementation of the FATCA law, the US approved two IGA models called IGA 1 and IGA 2, which we will detail below:
IGA Model 1
We define IGAs as the agreement between the US o The Department of the Treasury and a foreign government for the implementation of FATCA, this implementation occurs through the reporting of the accounts held by the FFIs to the government of their jurisdiction, so that later the governments automatically report said information to the IRS.
IGA Model 1 features
IGA Model 1s are characterized by being reciprocal, which implies that the jurisdictions that celebrate this agreement with the USA. They should automatically exchange the information provided by the FFIs in that jurisdiction with the IRS. But in turn, the IRS should automatically exchange information collected from US Financial Institutions. (FI) with the government of the jurisdiction with which you have signed the IGA Model 1 agreement.
Regarding the reciprocal exchange of information, it is necessary to make an important clarification, although the requires that the FFIs report the controlling person of the accounts that are opened there, understanding as controlling person the final beneficiary natural person, the US FIs. they are not obliged to report to the controlling person or final beneficiary of the accounts opened there, but must only report to the account holder (Account Holder).
To read more about the advances of the USA towards the exchange of information between countries see News from the latest Insight-Trust NL here ( https://insight-trust.com/eeuu-intercambio-informacion/ ).
IGA Model 2 features
What happens between Argentina and the US nowadays?
In December 2016 Argentina and the USA They signed a TIEA As we explained previously, the TIEA is a bilateral agreement, negotiated and signed between two countries to establish a formal regime for the exchange of tax information on demand (the Agreement).
The exchange of tax information is only on request, on demand and not automatic, as if it was the case that an IGA was incorporated into these TIEAs, there are strict conditions that must be met for the exchange to actually take place.
The procedure indicates that the country requesting information must present to the Competent Authority of the other country, the reasons why the information is requested and why such information is necessary. Likewise, the requesting country must also present a declaration indicating that it made use of all available means in its own country to obtain the information it is requesting.
The Agreement also mentions the possibility that there may be automatic and spontaneous exchange of information between countries, however, the competent authorities of the countries must determine in the future the procedures that will be used to exchange the information of said way.
It is also important to mention that the Agreement does not allow the exchange of information that reveals any type of professional secret.
Data to be exchanged
I. Identification of the person or group of people under analysis;
II. The fiscal period for which the information is required;
III. The matter or concept on which the information is requested;
IV. Reasons for believing that the information requested is foreseeably relevant to the tax administration of the requesting country regarding the corresponding person or group of persons;
V. Reasons to believe that the requested information is in the possession of a public entity or authority in the country receiving the request;
SAW. A statement that the requesting party has exhausted all available means in its own territory to obtain the information, except in those cases in which said action has generated disproportionate difficulties.
To conclude, it is necessary to mention that the US legislation It does not yet incorporate several standards promoted by the OECD to achieve transparency in tax matters, making the only information currently available from the United States. is that of bank account holders who:
1. Receive bank interest on your account;
2. They suffer withholding tax on dividend distributions of American assets.
3. In addition to complying with condition 1 or 2, have the account in a personal name or through a transparent tax structure.
The Agreement signed between Argentina and the USA establishes that the exchange of tax information will only take place when circumstances warrant and it will be accepted only if the agreed conditions are met.
Assuming that in the future Argentina and the US sign any of the IGA models mentioned above, there can be two situations:
1. If a reciprocal IGA Model 1 is signed, that there is an automatic exchange of information between both parties, however, at the moment, the USA. it would only exchange information of bank account holders and not of final beneficiaries;
2. In the event of signing an IGA Model 2, information on account holders in the US would not even arrive in Argentina. since the exchange of such information would not be reciprocal.
In order for there to be an automatic and reciprocal exchange of tax information at some point, in the sense that it is truly effective, the USA It should modify its internal legislation and thus begin to exchange information on the final beneficiaries of account holders in that country, forcing banks in this case to:
A. Modify the Know Your Client procedure and be able to access final beneficiaries of companies and their tax residence;
B. Send information of the final beneficiaries of their accounts to the IRS.
On the other hand, it should be mentioned that also with respect to owners of companies and real estate, the American legislation should be modified to oblige to register the information and make it available before the IRS.