URUGUAY ENDORSES OECD STANDARDS ON TRANSPARENCY AND

UNCLAS MONTEVIDEO 000187

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: EFIN ECON UY
SUBJECT: URUGUAY ENDORSES OECD STANDARDS ON TRANSPARENCY AND
EXCHANGE OF INFORMATION


1. (U) This telegram is sensitive but unclassified, and not for
Internet distribution.

Summary
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2. (U) Uruguay formally endorsed the Organization for Economic
Cooperation and Development's (OECD) standards on transparency and
exchange of information in immediate response to its placement on
the organization's April 2 list of non-cooperative tax havens, and
OECD Secretary General Angel Gurria welcomed the move. The subject
of the OECD report touched on two issues that have been in the local
news in recent weeks: a debate on banking secrecy between the two
principal Frente Amplio presidential candidates, and Uruguay4s
reputation as a tax haven, a characterization that President Vazquez
rejected at the Summit of Progressive Leaders in Chile March 27.
End Summary.

Uruguay's short stay in the OECD's doghouse
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3. (U) Following the G-20 meeting, on April 2 the OECD released a
report on the progress of 84 countries towards "implementing an
internationally agreed standard on exchange of information for tax
purposes." The report placed countries in four categories, and
Uruguay was one of only four countries -- along with Costa Rica,
Malaysia, and the Philippines -- that fell in the lowest category:
jurisdictions that haven4t committed to implement the
internationally agreed tax standard. In response, Minister of
Economy Alvaro Garcia wrote immediately to OECD Secretary General
Gurria to inform him that Uruguay endorsed OECD standards on
transparency and exchange of information, as set out in the 2005
version of Article 26 of the OECD Model Tax Convention. Foreign
Minister Gonzalo Fernandez ventured a public defense, saying that
Uruguay "never was, is or will be a tax haven" and underlined that
this is the only known case of a country "listed and de-listed in
less than 48 hours." OECD Secretary General Gurria welcomed
Garcia's letter, saying "I am pleased that Uruguay joins a growing
number of nations willing to cooperate in fighting tax evasion and
other tax abuses."


4. (U) The GOU promised the OECD that it would share tax information
with countries with which it has signed investment protection and
promotion agreements, and that it will seek to sign such agreements
with all OECD members. Agreements already signed with Portugal,
Chile, Spain, India, China, Germany and Hungary (among others)
include OECD norms.


5. (U) The Uruguayan press was quick to accuse Argentina of
pressuring the OECD to low-rank Uruguay. The press quoted former
Ministers of Economy Ignacio de Posadas (National party) and Danilo
Astori (Frente Amplio and a current Presidential candidate) as
saying that Argentina was attempting to provoke a crisis of
confidence in the Uruguayan financial system. Note: Argentina is
not an OECD member and it does not have an investment agreement with
Uruguay, raising doubts as to whether Uruguay will share tax
information with its neighbor. End Note.

President rejects tax haven label
--------------


6. (U) The OECD listing touched on two issues that have been in the
local press in recent weeks: a debate over Uruguay's bank secrecy
provisions and the broader question of whether Uruguay is a tax
haven. During the Summit of Progressive Leaders held in Chile in
late March, President Vazquez publicly rejected what he
characterized as "rumors" suggesting Uruguay is a tax haven.
Vazquez said Uruguay has been a serious and respectable country
throughout history, and stressed that his administration has
declared an open war against drug trafficking and related activity.
Specifically, Vazquez added that "Uruguay is fighting against
organized crime and money laundering and terrorism financing as
never before. We have sent bills and passed laws to work in that
direction; we have created specialized courts and will train
prosecutors to work on these issues. We have prohibited the
creation of new off-shore investment companies, and starting January
1, 2010 will eliminate them."


7. (U) Similarly, the director of Uruguay's tax agency declared
April 2 that Uruguay cannot be catalogued as a tax haven since it
does not fulfill three of the OECD4s four relevant criteria. Nelson
Hernandez stated that Uruguay taxes non-residents, has a transparent
fiscal system, and does not grant tax benefits to firms that do not
operate locally. With respect to the fourth criterion -- the lack
of exchange of tax information with other administrations --
Hernandez stated that the OECD requires information exchange clauses
in bilateral agreements and said that Uruguay4s mistake has been to
have failed to move forward on double taxation agreements.

The debate over bank secrecy
--------------


8. (U) Bank secrecy has been a subject of recent debate between the
two front runners for the Frente Amplio4s presidential candidacy,
senators (and former ministers) Danilo Astori and Jose Mujica. The
debate was triggered by Mujica4s call to eliminate banking secrecy,
a proposal that Astori rejected. The debate turned so hot that on
April 2 Central Bank President Mario Bergara called a press
conference to brief reporters on Uruguay4s regime and address
questions. During the conference, Bergara noted that all serious
countries have some extent of banking secrecy, highlighted that
Uruguay had gradually lightened its bank secrecy since 1982, and
underscored that the current regime stems from a comprehensive
political consensus reached during the discussion of the 2007 tax
reform. He stressed the Uruguayan judiciary's ability to lift
secrecy on deposits in cases of documented suspicion of money
laundering/terrorism finance, fraud, or tax evasion. Bergara also
underscored that bank secrecy can also be lifted by the Central
Bank4s supervisory and financial units, and he noted that the bank
has information exchange agreements in place with Brazil, the United
States and Spain.

Comment
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9. (SBU) We welcome Uruguay's quick response to the OECD, which
demonstrates the country's desire and willingness to be a serious
and responsible member of the international financial community.
The GOU's timely promise to adhere to OECD guidelines was also
undoubtedly due in part to a belief that inclusion on the OECD list
would put large foreign investments at risk. For example, the local
press reported that Uruguayan officials reached out to Portuguese
company Portucel, which plans to construct a USD 2-4 billion paper
pulp mill, to explain why they felt Uruguay's inclusion on the list
was a mistake. End Comment.

SCHANDLBAUER