CAPABLE ARGENTINE TAX AUTHORITY COOPERATING ON CSI, TRADE

UNCLAS BUENOS AIRES 000619

SIPDIS

SIPDIS
SENSITIVE

TREASURY FOR LTRAN AND MMALLOY
TREASURY PASS IRS
DOE/NNSA FOR STEPHANIE CLARKE
WHA FOR WHA/BSC, WHA/AND AND WHA/EPSC
E FOR THOMAS PIERCE
EB/CBA FOR FMERMOUD, DENNIS WINSTEAD
EB/IFD/OIA FOR WSCHOLZ, MTRACTON
EB/IFD/OMA FOR AHAVILAND AND ASIROTIC
PASS NSC FOR JOSE CARDENAS
PASS FED BOARD OF GOVERNORS FOR PATRICE ROBITAILLE
PASS USTR FOR EEISSENSTAT, SCRONIN
USDOC FOR 4322/ITA/MAC/OLAC/PEACHER
US SOUTHCOM FOR POLAD

E.O. 12958: N/A
TAGS: ECON EFIN KTFN AR
SUBJECT: CAPABLE ARGENTINE TAX AUTHORITY COOPERATING ON CSI, TRADE
TRANSPARENCY, SEEKS COOPERATION WITH DOE AND IRS.


1. This is an Action Request for the Departments of Energy (Paras.
2, 8) and Treasury (Paras. 4, 17).

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Summary
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2. (SBU) The Argentine revenue authority (AFIP) seeks to expand
cooperation with the U.S. on a range of important areas, according
to its Director Alberto Abad. Argentina is a Latin American leader
in Container Security Initiative (CSI) implementation. Abad said
AFIP seeks to expand its CSI pilot effort into a state-of-the-art
multi-port program linked to a Megaport (WMD detection) surveillance
program and wants to engage the U.S. Department of Energy to move
forward on this. Post requests DoE support to facilitate GoA
engagement on U.S. Megaport priorities.


3. (SBU) AFIP also wants to expand cooperation with the Embassy's
Immigration and Customs Enforcement office on money laundering
investigations related to tax evasion, contraband and smuggling
through their joint Trade Transparency Unit. AFIP is separately
working to control trademark piracy through a resolution allowing
Customs to detain shipments that appear to violate trademarks
registered in Argentina and the formation of a voluntary trademark
registry, as well as participating in a public/private sector
initiative to provide GoA enforcement agencies intelligence on
counterfeit shipments. Abad said AFIP wants to augment cooperation
with the Embassy and the USG in this field.


4. (SBU) AFIP has built a strong track record boosting GoA revenue
collection, partially due to Argentina's dramatic economic
expansion, but also to AFIP's efforts to develop a culture of
taxpayer compliance and to reduce evasion. One important way AFIP
is enhancing its anti-evasion efforts has been through the
negotiation of cooperation and information exchange agreements with
other national tax authorities, including those of Brazil, China,
and Italy. AFIP Director Abad also asked Ambassador that the
Embassy help facilitate negotiation of a cooperation and Information
Exchange Agreement between AFIP and the U.S. IRS. Post requests
U.S. Treasury support in facilitating direct contact between AFIP
senior management and appropriate IRS officials. END SUMMARY

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Container Security and Megaports Initiatives
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5. (U) Ambassador, EconCouns, and ICE Attache met March 23 with
Alberto Abad, GoA Director of Public Revenue (Administracion General
de Ingresos Publicos -AFIP) and Customs Director Dr. Ricardo
Echegaray, who reports to Abad. Abad explained that AFIP, now 11
years old, combines the previously independent 5,000 employee
Customs Administration (Administration Nacional de Aduanas - ANA)
with the 17,000 employee Tax Authority (Direction General Impositiva
- DGI),and the GoA's social security administration. The GoA
modeled this tri-partite organization on equivalent organizations in
Spain and Brazil.


6. (SBU) Abad noted the GoA's ongoing commitment to port security in
general and the USG's Container Security Initiative (CSI) in
particular. He called Argentina a Latin American leader in CSI
implementation, noting that the Argentine Customs authority had





recently purchased 9 mobile scanners (five of which are already in
use) and would shortly open bidding for 3 fixed scanners.


7. (SBU) Customs Director Echegaray envisions expanding the CSI
program from Buenos Aires' "Dock Sud" (South Dock) to additional
ports with the goal of eventually pre-clearing all U.S. bound cargo
containers from all Argentine port facilities. He noted, for
example, that Zarate port on the Parana River in Buenos Aires
province alone handles 11% of Argentine exports to the U.S.
Echegaray asked that the U.S. CSI team consider facilitating
inspections of regional ports from a base in Buenos Aires via remote
inspection scanners. Dr. Echegaray called this vision modeled on
the CSI program currently in place in Italy, where remote ports
provide inspection and scanning capabilities to centrally based CSI
teams.


8. (SBU) ACTION REQUEST: Finally, Abad noted that Echegaray's
Customs agency is taking the lead in implementing the Megaport
initiative (after a long bureaucratic battle inside the GoA),which
guards against WMD shipment in container cargo. AFIP, he said, is
purchasing additional equipment that will allow the nine already
purchased mobile scanners to also be capable of screening for
radioactive traces. He said AFIP wants to take up the offer of
cooperation with the U.S. Dept of Energy. Ambassador welcomed that
the GoA had sorted through which GoA agency will be in charge of the
Megaport initiative and said we would query Washington about next
steps. Note: Post has subsequently advised DOE/NNSA's Stephanie
Clarke of the GoA's apparent readiness to move forward on this
issue. Post requests DoE support to facilitate GoA engagement on
U.S. Megaport priorities.

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Trade Transparency Unit, Anti-Money Laundering Efforts
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9. (SBU) Abad noted U.S.-Argentine anti-money laundering efforts
include cooperation through a number of channels, including through
the GoA's Financial Intelligence Unit (UIF). He said the Embassy's
ICE office coordinates with GoA Customs through the Trade
Transparency Unit (TTU) to combat trade-based money laundering
linked to bill of lading manipulation. Through the TTU, Abad said,
AFIP hopes to expand cooperation with ICE on money laundering
investigations related to tax evasion and contraband/smuggling.


10. (SBU) Ambassador noted that the U.S. Treasury was organizing the
upcoming conference in Bogota on the development and implementation
of effective anti-money laundering and counter-terrorist financing
(AML/CFT) controls in the banking sector (U.S.-Latin America Private
Sector Dialogue). He said the Embassy had passed conference
invitations to Argentina's Central Bank, Ministry of Economy, UIF,
National AML/CTF Coordinator, and Banking Associations, and agreed
to provide details to AFIP. Abad noted the GoA's own AML
enforcement efforts, in coordination with FATF and GAFISUD (the FATF
style regional body for South America),and called the GoA's recent
reorganization and strengthening of the UIF a proactive effort to
address these serious threats. Of all foreign governments,
Argentina is working most closely with the U.S. on these issues, he
said, adding that the GoA in general and AFIP in particular wants to
deepen its institutional relationship with the U.S. Embassy.

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Trademark Enforcement
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11. (SBU) Ambassador called IPR protection a top Mission priority
and congratulated Abad on AFIP's recent destruction of several
hundred thousand pirated CD's and cassettes. Abad noted that in
October 2006, AFIP issued a resolution allowing Customs to detain
shipments which appear to violate trademarks registered in
Argentina. Customs can hold merchandise long enough to contact
rights-holders, confirm authenticity, and release legitimate goods
or initiate seizure proceedings for counterfeit. Additionally, AFIP
announced February 22 the formation of a voluntary trademark
registry, which will assist Customs in implementing this resolution.
Abad called trademark piracy the crime of the 21st century. "Many
are talking about trademark protection, but we are acting and have
been doing so for the past five years," Abad said. This effort will
only increase with this new AFIP resolution and the formation of a
trademark registry, he added.


12. (SBU) Abad explained that AFIP's anti-piracy efforts complement
those of the Ministry of Economy's Secretary of Industry and
quasi-independent National Institute for Intellectual Property
(INPI) who together take the broader lead on this patent, copyright
and trademark protection. Etchegaray noted AFIP's participation in
the Committee to Fight Piracy, a joint public/private sector
initiative in which the private sector provides intelligence on
counterfeit shipments to GoA enforcement agencies. Based on this
intelligence, Aduanas has already confiscated over 70 tons of CDs,
sunglasses, watches and other counterfeit items. ICE Attache noted
that they are currently engaged in several joint investigations with
the GoA targeting U.S. companies/individuals moving counterfeit or
patent infringing goods into Argentina. Ambassador said the Embassy
was moving to increase our work on IPR protection and would like to
develop close cooperation with AFIP. Abad agreed. (Note: We will
incorporate this cooperation with AFIP into Embassy's IPR action
plan, currently under preparation. End Note)

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AFIP's Success in Boosting Tax Collection
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13. (SBU) In 1997, the IDB approved a $96 million loan (plus $96
million in GoA counterpart funds) to assist in AFIP's consolidation
and modernization process. The IDB-funded program included five
major components: legislation and regulation; administration;
information technology; organizational development; and auditing.
Both the GoA and IDB consider the AFIP modernization program quite
successful, with significant declines in tax collection arrears and
evasion, and better attention to large and smaller taxpayers.


14. (SBU) Ambassador noted that the IDB considers AFIP a model tax
authority, praised AFIP's strong track record in boosting government

revenue collection, and asked how much of this increase was due to
growth-led increases in VAT and income taxes and how much due to
improved technology, taxpayer education, and enforcement efforts.
Abad called 70% of the GoA's revenue growth due to economic
expansion (including dramatically increased employment),the capture
of larger share of the inflation-boosted income in non-indexed
income taxes, and the imposition of new taxes (including export
taxes and a financial transactions tax) However, he attributed
fully 30% of increased revenues to AFIP's enhanced collection





efforts. Corporate tax collections should increase substantially in
the 2007-8 periods, he added, as tax loss carry forwards of over ARP
120 billion (US$ 40 billion) in company losses incurred in the
aftermath of the 2001/2 economic meltdown expire.


15. (SBU) AFIP's efforts to develop a culture of taxpayer compliance
and to reduce evasion will continue, Abad said, in part due to a
significant increase in GoA budget resources allocated to the agency
and improved information systems at its disposal. There is
significant room for improvement in collections, he concluded, with
Argentina's effective tax rate a relatively low 24%, well below
Brazil's 37%, the European Union's 40%, and the U.S.' 32%. (Note:
Most U.S. investors in Argentina, particularly in extractive
industries, argue that their consolidated tax burden is
significantly higher than 24%. End Note).


16. (SBU) One important way AFIP is enhancing its anti-evasion
efforts has been through the negotiation of cooperation and
information exchange agreements with a number of other national tax
authorities, including those of Brazil, China (in 2006),and Italy
(recently in 2007). Abad asked that the Embassy to help facilitate
negotiation of a cooperation and Information Exchange Agreement
between AFIP and the U.S. IRS. Argentina does have some contact
with the U.S. IRS now though Argentina's membership in the
Inter-American Center for Tax Administration (Centro Inter-Americano
de Administracion Tributario, which includes Latin nations and
Canada, Spain, Italy, France, Luxembourg and South Africa as
members). But AFIP sees the U.S. IRS as a model to be emulated and
seeks a closer working relationship through a bilateral accord. The
Ambassador promised to follow up and facilitate direct contact
between the two organizations.


17. (SBU) ACTION REQUEST: AFIP and its Customs affiliate are
impressively professional GoA entities already cooperating closely
with the USG on substantive CSI and anti-money laundering
initiatives. AFIP has expressed interest in adding the Megaport
initiative to this list, and anti-trademark piracy efforts are an
additional area where Post wants to work closely with AFIP.
Supporting AFIP's efforts to reduce rampant tax evasion in Argentina
speaks to our mission's goal of helping ensure this nation's
sustainable economic recovery from the 2002 economic crisis. Post
requests U.S. Treasury support in facilitating AFIP's request for
direct contact between AFIP senior management and appropriate IRS
officials to discuss the potential to negotiate a bilateral
cooperation and information exchange agreement.

WAYNE