United States: Argentina Seeks Access To Financial Information On Nationals

Last Updated: April 16 2013
Article by Rebecca Leon

Argentina signs the OECD Convention, but it does not obtain automatic access to financial information.

On September 13, 2012, the Organization for Economic Co-operation and Development (OECD) announced that Argentina became the first South American nation to become a party to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (the Convention).1 The Convention seeks to facilitate administrative cooperation between signatories in the assessment and collection of taxes and to assist nations with the prevention and prosecution of tax evasion.

The Convention was developed jointly by the Council of Europe (Council) and the OECD and opened for signature by the member states of both organizations in 1988, with the United States becoming a signatory in 1989. The Convention was later amended and opened for signature by all countries (known as States) beginning in June 2011. The amended Convention provides a framework for developing countries to coordinate with a large number of States in the sharing of information and assistance regarding administrative tax matters while protecting the legitimate interests of taxpayers, including protecting against double taxation and discriminatory taxes.2 The Convention does not require an automatic flow of taxpayer information be provided by each State, but it does encourage States to provide information to each other where there is a legitimate tax reason and where a State believes it to be lawful and appropriate under the terms of the Convention as adopted by each signatory.

As of March 11, 2013, the OECD reports that Mexico signed the Convention in 2010; Argentina and Brazil signed in 2011; and Costa Rica, Colombia, and Guatemala signed in 2012. Of these States, the Convention has only entered into force in Argentina and Mexico, with effectiveness in Argentina as of January 2013. The Convention has been signed by more than 40 States (each signing State is known as a Party), and additional Central and South American countries may follow.3

Covered Taxes

Article 2 of the Convention lists the taxes that are covered by the Convention. The list includes taxes at the federal and local levels and a catchall provision for "any other taxes." Each Party has the opportunity to narrow the list of covered taxes that will be applicable to it and to indicate what "other taxes" it shall include as covered taxes. The United States and Argentina both declared certain reservations. However, both States agreed to treat the following, among others, as taxes covered by the Convention: (i) income tax; (ii) estate, inheritance, or gift taxes; (iii) social security contributions; and (iv) sales and value-added taxes. Notably, both the United States and Argentina declined to adopt the Convention's provisions on assisting other States to recover such State's tax claims and/or administrative fines.4

Exchange of Information

The Convention includes provisions for the exchange of information (i) upon the request of a Party, (ii) automatically as agreed between Parties, or (iii) spontaneously by one Party to another. The Convention specifically indicates that it covers requests concerning both residents and nationals of a State. Notably, the Convention does not set forth any procedures or details for the automatic exchange of tax information. Instead, it simply states that two or more Parties may agree to the circumstances and procedures under which they will automatically exchange tax information. The OECD has suggested that an administrative agreement between the competent authorities of two Parties could address such issues, highlighting the fact that additional agreements between Parties are still necessary before any automatic exchange of tax information.5 Thus, while the Convention provides a framework for multilateral cooperation, in most cases, the Convention provides that Parties must still make a request for information to local authorities, as further discussed below.

Information Requests and Denials

A Party requesting information generally must provide identifying information for the person about whom the request is made and indicate if the request for assistance conforms with the laws and administrative practices of the requesting State. A Party may also be required to show that it has pursued all reasonable measures available under its own laws or administrative practices to obtain the requested information, unless such measures would be disproportionately difficult. After a request is made, the Party subject to the request shall obtain the requested information by any methods available under its own laws or administrative practices or provide an explanation for the denial of the request.

The Convention indicates that States may not decline to provide information merely because the information is held by a bank, other financial institution, fiduciary, or nominee or because it relates to ownership interests in an entity. On the other hand, a State subject to a request may decline to provide information where it would be contrary to the State's public policy; the information is not obtainable under its own laws or the laws of the requesting State; or the information would disclose trade, commercial, or professional secrets.

Spontaneous Exchange of Information

The Convention also provides that information shall be provided by one Party to another Party without a request if the first Party has knowledge of any of the following:

  1. There may be a loss of tax by the other Party.
  2. A person liable to tax obtains a reduction in or an exemption from tax in the first-mentioned Party, which would give rise to an increase in tax or liability to tax in the other Party.
  3. Business dealings between a person liable to tax in one Party and a person liable to tax in another Party are conducted through one or more countries in such a way that a saving in tax may result in one Party or in both.
  4. A Party has grounds for supposing that a saving of tax may result from artificial transfers of profits within groups of enterprises.
  5. Information forwarded to the first-mentioned Party by the other Party has enabled information to be obtained, which may be relevant in assessing liability to tax in the latter Party.

Implications

The Convention has provided Parties with another tool to obtain personal financial information about their citizens and nationals. Nevertheless, many Parties have had bilateral information-sharing agreements and tax treaties in place for decades. While the Convention may expand a State's treaty network and, in some cases, broaden the scope of the information it may obtain, it remains unclear how much additional information, if any, will flow from the United States and other States to Central and South American Parties without setting forth a definitive framework for automatic information sharing.

Footnotes

1. View the OECD announcement here.

2. The complete text of the amended Convention is available here. A request for ratification of the amended Convention was transmitted by President Barack Obama to the U.S. Senate on May 17, 2012, and subsequently referred to the Committee on Foreign Relations.

3. A complete list of signatories, ratification statuses, and effective dates is available here.

4. The complete list of declarations and reservations made by each Party is available here.

5. OECD's questions and answers on this topic are available at here.

Copyright 2013. Morgan, Lewis & Bockius LLP. All Rights Reserved.

This article is provided as a general informational service and it should not be construed as imparting legal advice on any specific matter.

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