Uruguay News Brief: Uruguay signs double taxation agreement with Romania

On September 14th, the Uruguayan government signed an agreement with Romania to avoid double taxation. The agreement will also allow the two governments to exchange financial information in order to prevent tax evasion.

This treaty is the 17th tax agreement Uruguay has entered. These Agreements were one of the major reasons that the OECD decided to move Uruguay into phase II of its Global Forum on Fiscal Transparency.

This Uruguay Business Reports news article is a translation of an article that appeared in the Uruguayan newspaper El País. The original article in Spanish is available here. Uruguay Business Reports translation by Donovan Carberry

OCDE recognizes Uruguay’s step towards financial transparency; Uruguay will move on to phase II

The approval for Uruguay to enter Phase II of the Global Forum on Fiscal Transparency, “shows the seriousness and ability with which [Uruguay] has worked”

The OCDE’s decision was expected after Uruguay signed tax information exchange treaties with various different countries and passed the identification law for corporate shareholders.

The government had predicted that the tax information exchange treaty with Argentina, which is still under discussion in Uruguay’s parliament, would contribute greatly to whether the OCDE’s decision to elevate Uruguay’s status. However, Uruguay has achieved Phase II without it.

After learning the news, Pablo Ferreri the head of Uruguay’s tax agency known as the DGI, wrote on his twitter account: “It is good news and shows the seriousness and ability with which [Uruguay] has worked. This recognizes that the Uruguayan regulatory framework allows you to comply with international transparency standards”.

The second step, Phase II, as the OCDE calls it, will begin at the start of 2014 and will involve reviewing if Uruguay’s rules on tax information are actually followed and enforced.

The OCDE’s decision, according to Ferreri, will help Uruguay capture serious investments because it shows that Uruguay has internationally recognized rules on fiscal transparency.

It also ensures that Uruguay has more work to do. Items still on the agenda include signing the tax information exchange treaty with Argentina and creating another one with Brazil.

This Uruguay Business Reports news article is a translation of a news story that appeared in the Uruguayan newspaper Unoticias. The original Spanish language article is available here. Uruguay Business Reports news translation by Donovan Carberry.

Tense debate among the cabinet on which economic course to take

The alternative MEF team proposes taking a larger role in the country’s economy using measures “more of the left”.

Today, Monday June 11th, the cabinet along with president José Mujica and vice-president Danilo Astori will analyze the government’s budget priorities.

The group is divided on the subject, Astori has insisted on not spending “a peso more” than the S140 million USD proposed, and the Planning and Budget office’s team, which reports directly to Mujica, is proposing spending between $5 million and $10 million USD more.

There is a profound divide within the cabinet with Astori and Fernando Lorenzo, the Economy minister, on one side and the group reporting to the president on the other.

The alternative economic team is made up of the Planning and Budget office’s director Gabriel Frugoni, the ex Economy undersecretary Pedro Buonomo, and the Planning and Budget office’s sub-director Jerónimo Roca. They have proposed the government take a larger role in directing the path of Uruguay’s economy.

Their objective is to change the government’s economic policies which up to now have been under the aegis of Astori. They are aiming for a better distribution of wealth and to change the status quo which the government has entered, Frugoni told the weekly magazine Búsqueda.

In reference to the allocation of resources in the budget Frugoni said that the “captain” of the project is Mujica and he will prioritize them according to his interests.

In a similar vein, on Sunday Buonomo told the daily newspaper El Pais that the economic situation is not “the direct consequence of the actions of an economic team”, but that “it is the result of many causes”. He added “the notion of the economic team does not exist as such”. “The ministers advise and Pepe [president Mujica] makes the decision” he said.

This Uruguay Business Reports news story is a translation of an article that appeared in the Uruguayan newspaper El Observador. The original Spanish language article is available here. Uruguay Business Reports translation by Donovan Carberry.

 

Budget will not increase spending but will reallocate resources: The external crisis and a large deficit do not leave room to increase spending, says Economy Minister

Economy and Finance Minister, Fernando Lorenzo, warned during Monday’s cabinet meeting that the international economic situation still contains the high level of “uncertainty” that his office has assumed from the start of the year and because of this they will be more “prudent” in planning the budget and which priorities to carry out next year.

Official sources told El Observador that the economy minister hinted at  the idea of “maintaining” the same level of public spending as last years budget. Regardless the President will have to find a way to reassign funds to complete his 2013 priorities. Included in his agenda are health, education, reforming the state railway administration and the entry of retirees into FONASA. The president will count on a “cushion” of 140 million USD that will not be included in the budget this year.

During his presentation Lorenzo talked about that the energy cost over run that UTE (the state-owned utility company) is experiencing [because a drought is causing hydroelectric plants to under perform] and the Central Bank’s policy of maintaining liquidity to control the dollar’s impact on the fiscal deficit target of 1% projected for 2012, sources said.

Additionally, he also showed concern about the economic crisis in Europe and that protectionist trade practices will continue this year, Lorenzo included (for the first time) Argentina as “risk factor” given the possibility that the country will initiate an adverse economic cycle, government sources revealed to El Observador. Also, when the head of the Economy Ministry was explaining the rules which will guide the next budget, the president, Jose Mujica, interrupted him and suggested that idea be discussed in detail in a special cabinet meeting that will be sometime after today. President Mujica said two weeks ago that priorities for discretionary funds in the 2013 budget will health and education.

The presidential undersecretary, Diego Cánepa, who was one of spokesmen on the cabinet meeting, pointed out that the 2010 budget, off of which this budget is being based, only considered two “exceptions” to the limit on spending increases which were the ASSE (the Uruguay state health service and the military health services. “The minister (Lorenzo) evaluated the situation as highly uncertainty in an international context, the most [uncertain] we’ve seen in six months” admitted the presidential undersecretary.

For the Economy ministry the crisis affecting Europe indicates that they should have a “prudent” vision in order to maintain macroeconomic stability. Also they advised not to expect a change in the situation outside the country in the short-term. Also because of the ongoing crisis the protectionist trade measures that several countries have adopted as protection from the crisis would “persist”, like the ones initated by Uruguay’s regional partners (Brazil and Argentina). For now, the Economy ministry continues to expect 4% growth in the economy, sources said.

Private analysts that answered the Central Bank’s expectations survey lowered the average GDP growth forecast for 2012 from 4.5% in January to 4% in April.

ANALYSTS

Economic analysts consulted by El Observador agree with the pessimistic diagnosis of the global economy that Lorenzo gave at the cabinet meeting. According to Florencia Carriquiry from the Deloitte consulting group, the risk of the European crisis having a local impact are growing. “In Europe we see that we will have turbulence, particularly if Greece exits the euro zone” she said. According to thie scenario the euro will depreciate and the dollar will strengthen.

Aldo Lema from Vixion Consulting said the principal “threats” for Uruguay are a “hard” landing for the Chinese economy and that the European financial crisis drags another country out of the euro zone, along with Greece.

For these reasons PwC analyst Ramón Pampín’s opinion is that in addition to being “restrictive” with the next budget, the Uruguayan government should also reserve space to confront energy “contingencies”, such as an inability to generate hydroelectric power or the price of oil, which can affect the savings of public entities.

The experts recognize that a deceleration in the Argentinean economy will have a small effect and certainly hurt some sectors, but the degree of dependence on that country has been noticeably reduced recently. The service sector, particularly tourism, will be the sector most affected [by a slow down in Argentina] in Carriquiry’s view. Also she warned that a worsening in Europe’s economic problems would create downward pressure on the price of commodities exported by Uruguay.

This Uruguay Business Reports news article is a translation of a story which appeared in the Uruguayan newspaper El Observador. That story, in spanish, is available here. Uruguay Businesss Reports translation by Donovan Carberry.

MARTÍN GARCÍA CANAL CONFLICT: Uruguayan opposition asks to freeze tax treaty with Argentina as long as the canal dredging is delayed

The leaders of the opposition closed ranks after asking the government not to send the tax information exchange treaty with Argentina to parliament now that the neighboring government has decided to suspend the process of dredging the Martín García canal while they investigate reports of corruption surrounding it.

“We told them not to send the treaty because we won’t vote for it. We think it’s a very weak position to accept everything Argentina tells us when they don’t accept anything” Colorado senator José Amorín told EL PAÍS digital.

The senator believes that the letter sent by foreign minister Héctor Timerman to External Relations minister Luis Almagro is proof that the Argentinean foreign minister “is only interested in obstructing this [the dredging] and not moving forward, but this something that Uruguay needs”.

He saw that the parliament has to vote on a treaty that is of special interest to Argentina (it will stop Argentinean citizens from using Uruguay as a tax haven) and that this exchange treaty could be used as an element to pressure them in the same way that “they have been using the dredging”.

The same sentiment was shown by blanco senator and president of the National Party, Luis Alberto Heber, who told EL PAÍS digital that “Uruguay should not hurry to sign the tax office information exchange treaty and that we suggested to the executive office not to send it to parliament” he added that now “we will have to wait” to see what happens.

Nationalist senator Jorge Larrañaga told Subrayado (a Uruguayan tv program) that “it would be good to delay the treaty agreement in parliament as a signal to Argentina. It is very difficult to discuss this agreement when Argentina has postponed dredging the canal again”, he explained.

LETTER.

The opposition leader also closed ranks behind the government, to support the tone of the reply letter that Almagro sent to Timerman about the request to initiate an investigation into the alleged corruption.

“the note that Timerman sent to our foreign minister is unacceptable” said Heber and he emphasized that Almagro’s reply mentioned the publication of the proceedings and their dissemination to the public.

“No one doubts the honesty of Almagro and the delegates of the Rio de la Plata Administrative Commission (CARP) but we want to stand firm, we won’t vote on what they [Argentina] asked when they don’t do anything to honor our interests. We there to be feedback[sic]”.

This article is a translation of one that appeared in the Uruguayan Newspaper El Pais. The original news article can be found, in Spanish, here. Translation by Donovan Carberry.

In order to obtain tax benefits for their projects, Uruguayan investors resort to the old tax law

Uruguay Business Reports translation by Donovan Carberry

The number of investment projects applying to the Committee on Investment Law Implementation (Comap) to receive tax benefits grew by a total of 143% in the first trimester (with respect to the same period in 2011) and totaled US $ 441,500,000.

Of the 128 projects which applied, none made claims under the new regulatory section of the law which has been in force since January 9th, announced the Private Sector Support Unit of Economy (Unasep) Ministry.

Under the law businesses that applying within 90 days of the new law taking effect can opt to make claims under the new code or the old one.

Various consultants have advised that the new code is less beneficial that the old one. This explains why all of the businesses that could choose one or the other, chose the old code.

Of the 128 undertakings, “94 corresponded to new projects, that is to say business investment plans presented for the first time, meanwhile 34 where increases in projects that had already obtained approval”, indicated Unasep.

Of the total planned investment, US$ 294.9 millon are for the addition of machinery and equipment and the rest, US$ 146.6 millon corresponds to civil works.

Between January and March there were 19 new businesses, they did not have more than one year of tax payments, which presented investment projects, and represented 15% of the total projects presented during this period, informed Unasen.

This story is a translation of an article that appeared in El Pais. That story, in Spanish, can be viewed here. 

New tax pact predicted to foster the sale of services to Argentina; The ability to deduct taxes in the other jurisdiction will favor exchange

In the middle of the controversy surrounding the tax information exchange treaty between Uruguay and Argentina, not all is seen as bad news by private analysts, some say the agreement may open an opportunity for the import and export of services between businesses in the two countries.

Enrique Ermoglio, tax expert at the consulting firm Deloitte, said yesterday at an exposition before Uruguayan businesses that he has identified an opening for service firms once the agreement goes into effect.

The exchange of information under the agreement would end double taxation and that would create a better situation for importers and exporters of services.

“There are a large quantity of Uruguayan businesses that export services and today they have the significant disadvantage in tax deductions outside the country, that makes doing business very expensive”, said Enrique Ermoglio.

Today Uruguayan service exporters transfer their local tax costs by incorporating in the final price that Argentinean importers pay, who then can not deduct it from their local taxes.

“When a Uruguyan business pays for a service outside the country, generally they have to pay additional taxes. When their counterpart can’t deduct it, what ends up happening is that cost is transferred. It’s very common that when a Uruguayan firm signs a contract they assume that the Uruguayan taxes are the responsiblity of the Uruguayan business. Therefore, on top of the cost of the service they have to assume the cost of the tax”, explained Enrique Ermoglio.

By eliminating double taxation, the agreement would lower the costs of services that generally are in technologies that are not available in the local market.

BEARER SHARES

However, the analysis of the information exchange treaty done by the consulting firm Deloitte, found that this benefit won’t be seen without connecting it to the bill on changing the rules on bearer shares to allow the identification of the shareholders in businesses where this benefit applies.

Leonardo Costa, a lawyer and partner at the consulting firm, says that uniting both codes will be important for tax planning and that, to this end, they have to look at the two as one. The bill in question is currently under review in the finance committee of the Chamber of Deputies, meanwhile the exchange of tax data should be approved by legislators in both countries.

“What we have to see is the extent of the information, how to get the information, what the register they’re creating is like, and who should register, because this data is going to be public information accessible through the Tax Directorate General”, said Costa.

With regards to those issues, he added that “If it comes out as it is today, where foreign businesses that aren’t subject to [Argentinean taxes] in Uruguay do not have to register, naturally it will create the opportunity for those individuals that have real estate assets  to avoid having to get rid of them or sell them quickly or directly transfer them to a Panamanian company, if they haven’t already” said Costa.

Another important point for Costa is the previously mentioned undeclared assets. “As long as the treaty is not in force it is possible to eliminate them, save those that are real estate”.

This article is a translation of an article that appeared in El Observador on May 9th, 2012. You can view the original article here. Read more Uruguayan business news in English return to our home page. For the latest Uruguayan business news in English delivered to your mailbox subscribe to Uruguay Business Reports by entering your email in the sidebar.

Tax-free international parcels will be limited to five per person; Each parcel must be valued at less than US $200; Should affect online shoppers

The Uruguayan government will restrict the amount of international parcels Uruguayans can have shipped from outside the country tax-free to five with a total value up to US $ 1,000 per person per year. The Uruguyan goverment also has established procedures for private couriers that will allow Uruguay to verify compliance with the new limits.

These details form part of the regulation that was drawn up by Economy and Industry Ministries under an article included in  last year’s budget which increased the value of parcels exempted from taxation to US $500 from US $50  said El País sources in the Economy Ministry.

While the budget increased the potential value of tax-free parcels, more legislation is need for this change to go into effect. Article 260 of the budget that the government sent to parliament late last year stated that: “express delivery international purchased parcels, whose weight does not exceed 20 kilograms and whose value in local currency is less than US $200, with the exception of those that contain products subject to the excise tax (Imesi) will be exempt from import, export, transit taxes, and the value-added-tax (IVA).”

The article further states “the tax regime provided for in the preceding paragraph applies with respect to international express delivery postal parcels, which are handled under normal conditions, in accordance with the regulations dictated by the Executive Branch”.

Sources say  that the regulations will establish a numeric “maximum of purchases” that can be made “per year, using the exemption”. At the moment the draft decree allows five tax-exempt purchases to be made per year, sources said, which is a maximum of US $1,000 if each parcel had the maximum value of US $200.

The regulation was prepared initially by the  Economy Ministry and later passed to the Industry Ministry who made some changes at the end of last month. The draft of the regulation returned to the Economy Ministry and should be signed either this week or next week by the head of the Ministry Fernando Lorenzo.

In addition to setting a limit on purchases per year, the decree establishes certain “methods of control” such as the whoever is receiving the package must be to same as the purchaser in order to simplify enforcement.

Private mail courriers in Uruguay will also be required to use “control” software to track the number of packages and to ensure people don’t go over the limit.

CONTEXT

In 2001, in the middle of the economic crisis, the government of Jorge Batlle approved a decree exempting puchases up to US $50 to enter Uruguay without paying taxes.  Since that decree, there has been a growth in purchases of clothes and other goods from foreign countries encouraged by a weak dollar but it has hurt local industry.

Now the decision to increasing the tax-free limit is linked to other goals. One of these is compliance with the Framework Agreement on Trade and Investment (TIFA) that Uruguay has signed with the United States which makes a point of developing e-commerce. Additionally, the exchange rate has changed and is no longer encouraging these purchases.

Currently the tax-free exemption of up to U.S. $ 50 is to allow “family gifts, groceries, clothing, cassettes, tapes, photographs and those similar objects that can match this concept,” says the decree. Never the less, it excludes things like sunglasses, cash, seeds, flamable products, tobacco, cigarrettes, cigars, medicine, and others. In the case of purchases between US $50 and US$100 there are customs taxes equal to 60% of the value. However currently there is no limit on purchases. Consumers can ship an unlimited amount of small items tax-free.

Inside the garmet sector, the limit increase is seen as mixed although the limit increase to US$ 200 could create greater competition, many local companies use the tax-free packages to get small components for their products since the Temporary Admission process usually takes longer and costs more for the government and the importers, industry sources said.

This story is a translation of an article that appeared in the Uruguyan newspaper El Pais. To view the original article in Spanish click here. A similar story appear in the Uruguayan newspaper El Observador which can be viewed here (also in Spanish).