URUGUAY: STEPS TOWARD MEETING TAX TRANSPARENCY

UNCLAS MONTEVIDEO 000403 SIPDIS DEPT FOR WHA/BSC MARY DASCHBACH E.O. 12958: N/A TAGS: EFIN ECON UY SUBJECT: URUGUAY: STEPS TOWARD MEETING TAX TRANSPARENCY COMMITMENT TO OECD REF: MVD 0187 ¶1. (U) This telegram is sensitive but unclassified, and not for Internet distribution. Summary - - - - ¶2. (SBU) Uruguay's tax policy chief David Eibe told the Charge July 10 that Uruguay is moving forward on its commitment to meet OECD standards on transparency and exchange of tax information. To do so, Uruguay is pursuing double taxation agreements with OECD members, and has already signed four agreements. Uruguay would be interested in such an agreement with the USG, Eibe said. Uruguay's current tax structure is adequate for its needs, and the country's revenue stream is steady. End Summary. Background - Named and (briefly) Shamed by the OECD - - - - - - - - - - - - - - - - - - - - - - - - - - ¶3. (U) Following an April 2 G-20 meeting, 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 rated 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 have not committed to implement internationally agreed standards. In response, Minister of Economy Alvaro Garcia wrote to OECD Secretary General Gurria to inform him that Uruguay does indeed endorse OECD standards on transparency and exchange of information, as set out in the 2005 version of Article 26 of the OECD Model Tax Convention. In fact, according to Eibe, Uruguay had already taken steps to put those standards in place previously, but had hoped to wait until after the Presidential elections in October. Upon receipt of Garcia's letter, OECD Secretary General Gurria immediately removed Uruguay from the "blacklist." To remain off the blacklist, 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 as many OECD members as possible. Keeping in the OECD's good graces -------------- ¶4. (SBU) In a July 10 call on David Eibe, the outgoing Director of the Ministry of Economy's Tax Advisory Department, Charge Matthewman asked about the GOU's strategy to address the OECD commitment. Eibe explained that the GOU has decided to negotiate and sign double taxation treaties that include tax information exchange provisions with OECD members. Agreements have already been signed with Germany, Mexico, Portugal, and Spain, and Eibe said that one of those (he was unsure which) will be presented to Uruguay's Parliament within weeks for ratification. There has been some thought to negotiating with Brazil and Argentina, Eibe mentioned, but he indicated that such negotiations would be complicated within the Mercosur framework. ¶5. (SBU) The GOU plans to ultimately have 12 such agreements in place; negotiations began with the countries that had shown the most interest. The GOU prefers to negotiate double taxation treaties instead of simple tax exchange information agreements because it believes the tax revenue implications of double taxation treaties make those agreements more palatable to the parliament. Eibe indicated that any expression of interest from the USG would be welcome; the charge explained that we had not received any indications of interest by the U.S. Treasury Department at this time. Uruguay's tax structure: adequate for anticipated needs - - - - - - - - - - - - - - - - - - - - - - - - - - - - ¶6. (SBU) Reflecting on the tax structure that he leaves behind (after working for six different ministers of finance in several presidential administrations),Eibe commented that he felt Uruguay is in a pretty good situation. Tax revenue accounts for a steady 29 percent of GDP, while public spending is usually between 28-31 percent of GDP. Uruguay's heavy reliance on VAT and the relatively small amounts collected from import duties (with no export taxes) helps to insulate the country from changes in the values of commodities. The introduction of an income tax during the present government helped broaden the tax base, and Eibe believes that the next administration will likely only reduce it on the margins (perhaps cutting taxes on the earnings of retirees). Eibe said he is concerned that tax exemptions for new investments had gone too far, and expects the government will contact him in his capacity as a private consultant to develop options to begin to turn that trend around (for future investments). Matthewman