Uruguay is planning to tax deposits and other assets held overseas by residents in the country. The bill which has been drafted and promises to be controversial is expected to be sent for legislative consideration in coming days announced Economy minister Fernando Lorenzo.
According to the draft all income generated overseas from deposits held by residents in Uruguay as well as those originated in assets or investments from non resident companies or participations in non resident companies by residents in Uruguay will be liable to Uruguayan income and wealth taxes.
“This means that once the bill is approved residents in Uruguay will have to pay income and wealth taxes on overseas income and from their share of assets in financial or other investments overseas”, said Lorenzo.
According to information from the Bank for International Settlements Uruguayan residents have 8.18 billion US dollars deposited overseas.
But the bill goes even further and also proposes changes to the banking secret accounts system in Uruguay.
Lorenzo said that information on bank accounts and deposits in Uruguay will remain protected by law: only under a formal request approved by a Judge can the information be revealed.
However the reasons or conditions to request lifting such confidential information will be extended in such a way that “the tax revenue office working with reasonably founded information or claims can have access to the taxpayers’ accounts once a Judge decides affirmatively to such a request”.
The introduction of reforms to tax rules and current banking legislation protecting depositors’ confidentiality, which should facilitate combating tax evasion or elusion and levying income from deposits overseas held by residents in Uruguay has been linked to the international agreement on tax standards sponsored by the Organization for Economic Cooperation and Development, OECD.
OECD is involved in a world campaign to promote transparency and exchange of information for tax purposes and publishes black and grey list of countries considered tax havens or financial centres, according to the degree of collaboration with these proposals.
However the Uruguayan government initiative promises to be controversial since not all parties believe Uruguay should abide by the new rules.
“Uruguay is accepting pressure from rich countries and the government is not defending the interests of Uruguayans”, said Conservative leader Pedro Bordaberry who added that rich countries such as the United States and Argentina “are interested in having information on our holdings and on our wealth”.
“This is crucial for Uruguay since as a small country it is a net importer of capital. Very few Uruguayans have holdings overseas but many foreigners have their earnings here in Uruguay, and we have always stated that what ever is here, is taxed here”.
Bordaberry added that “we are admitting that they have won us, we are accepting pressure from rich countries which has increased significantly lately because of the international crisis”.
He said Uruguay should have stood strongly and fight for at least “tax credits” which means foreign residents in Uruguay are not double taxed.
“This government has handed over fiscal sovereignty to the pressure of rich countries”, said Bordaberry. “OK, I’m turning in has been the attitude of the last five years of the allegedly ‘Socialist government’ that promised to defend sovereignty and the poor from the rich”.
A less political and more technical criticism came from a tax expert and former Deputy Cabinet Chief Leonardo Costa who points out the bill is not clear as to whether it will be criminal or civil courts that will decide on lifting bank deposits’ information.
“Furthermore Uruguay lacks specific courts for tax issues and will be at the mercy of the officials from the Revenue Office and their interpretation of regulations, putting an unbearable pressure on the magistrates who don’t have the necessary technical support”, underlined Costa.
“According to the draft I have read tax payers are left quite exposed and with limited rights. This is a very delicate terrain, since the country has a long tradition of protecting people’s rights (human, civil, fiscal) and the only purpose should not be to have us out of the OECD grey list”, said Leonardo Costa.