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
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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
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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
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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
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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