Fri, 01/05/2009 - 02:00 | by admin
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Chile’s bid to become a member of the OECD - and sign a double taxation agreement with the U.S. - hangs on a bill, presented to Congress at the beginning of May, to give the tax authorities access to Chileans’ bank accounts.
Think of a tax haven and names like Bermuda or the Cayman Islands spring to mind, but not Chile. Yet, in April, Chile found itself on a so-called ‘grey list’ of countries, including Austria, Switzerland and Singapore, that have not yet implemented a key article of the OECD Model Tax Convention to allow exchange of information for tax purposes.
Tax evasion has become a focus of the Organisation for Economic Co-operation and Development (OECD) in recent months as part of the global trend towards greater transparency in financial transactions. The G-20 meeting in London in April, during which the list was issued, also gave a strong signal that being a good global citizen includes removing obstacles to financial transparency.
Although the international financial crisis was not caused by bank-client confidentiality, it has shaken public confidence in the banking system and restoring this trust is a priority of governments worldwide. In addition, ensuring that all countries play by the same tax rules would let cash-strapped governments track down tax avoiders and help pay for expensive economic stimulus plans, points out Nicola Bonucci, the OECD’s director for legal affairs.
Chile is not considered a tax haven, he says, and has more to gain than lose from complying with the OECD standard. “We don’t believe it’s a revolution, it’s more of an evolution.”
At the beginning of May, the government did, in fact, present Congress with a bill that would allow the national tax service, the Servicio de Impuestos Internos (SII), to access Chileans’ bank account information and share it with other countries’ tax authorities.
If the bill passes - and it is expected to do so fairly quickly - Chile will be taken off the list and meet a key condition for OECD membership. “But this is not only about the OECD,” says Karen Poniachik, a former minister of mining and Chile’s representative in negotiations with the OECD.
“We have to pass this legislation to keep up our position abroad as one of the more transparent countries,” she says. “It’s the direction the world is going, so why should Chile be left behind?”
The SII already collects information about the salaries, investments and assets of taxpayers. Only bank account balances and transactions are off-limits for the authorities unless a court rules there is sufficient evidence of criminal activity like drug trafficking, money laundering or terrorism.
“We’re currently able to exchange information with other countries in 90% of cases, but this law is designed to address the other 10%,” says Poniachik.
The limits of privacy
The Bachelet administration wants Chile to become a member of the OECD before the end of its term in March 2010 and achieving this requires legislating against companies suspected of bribery and improving the corporate governance of state-owned companies like Codelco, but falling into line with the OECD’s exchange-of-information rules is by far the most important condition.
It would also pave the way to signing a double taxation avoidance agreement with the United States. Chile has 20 such agreements in force with countries including Canada and the UK, but agreements with the U.S., as well as Australia, have stalled on the issue of bank-client confidentiality.
“The double taxation agreement… is a natural development after the Chile-U.S. Free Trade Agreement,” says Ricardo García, president of AmCham and AIG’s Chilean subsidiary Seguros Interamericana. “It would improve the flow of investments, in particular Chilean investments in the U.S.”
But there is the matter of privacy, a right enshrined in Article 19 of Chile’s constitution, points out García, who also adds that giving public officials access to bank account information would increase the possibility of its misuse. “But being a transparent country aligned with OECD standards and double taxation agreements is not incompatible with respecting the rights of citizens,” he says.
Indeed, Chileans need not be concerned about their privacy under the new law, says Héctor Lehuedé, tax policy advisor to the finance minister. “This does not mean an end to confidentiality… the SII already manages confidential information without disclosing it.”
It’s true that the new bill gives the SII access to bank accounts in non-criminal tax matters as requested by the OECD, but clients would have the right to object, at a judicial hearing, to the disclosure of their information to the SII or any foreign tax authority.
After the SII sends a request for information, the bank would have to inform their client in writing, and the client would then have ten days to decide whether to accept or reject the request. If rejected, the SII would have to go to court to get judicial authorization to access the information.
Residents of other countries like the U.S. and Canada do not have the option of going to court, but it is acceptable to the OECD “provided the procedure is a speedy one,” says Bonucci.
“We have always said that access to banking information can be through direct or indirect means, and indirect means could include an administrative or judicial proceeding,” he explains. “On request does not mean on demand.”
One of the key objections in Chile to allowing the SII broader access to banking information has been that, under present legislation, it is the SII itself that rules on appeals on tax matters. Now, however, independent Tax and Customs Courts are being created, although some may not be ready to hear cases in parts of the country until 2012 (and, in the interim, requests for judicial authorization under the new law would be heard by the civil courts).
Considering that Chile is not a tax haven, the authorities do not expect frequent requests for information from other countries’ tax authorities. Spain, for example, receives about ten requests a year. “Like Spain, we don’t expect much interest from other countries, but we must have the same standard,” says Lehuedé.
The advantages of transparency
By reciprocity, the law will potentially give the SII access to information about Chileans who may be avoiding local taxes via foreign bank accounts. This will make tax collection more efficient and give Chilean taxpayers confidence that everyone is being treated equally under the law, argues Lehuedé.
“There is no direct relation between access to banking information and a reduction in tax evasion,” says SII director Ricardo Escobar, “but it is an addition to our toolbox for ensuring taxes are paid.”
Tax evasion will never end, he admits, but better regulation can reduce it. “That helps make a healthier economy in which companies that do comply do not face unfair competition from those that don’t pay their taxes,” he says.
Of course, this depends on the cooperation of the banks. The new law will mean more work and higher costs in collecting information about clients and passing it on to the authorities, says José Manuel Montes, head of the legal department at the Association of Banks and Financial Institutions (ABIF).
Most of the information likely to be requested is available at the click of a button but some cases could be more complicated. That is why European banks have asked to be reimbursed by the state for this service, says Montes.
“There is a risk that (the SII) could go on fishing expeditions asking the banks for information on 100,000 clients in the hopes of catching one cheating, but we hope this doesn’t happen,” says Montes.
To avoid this, requests should only be made in specific cases where an investigation is warranted, he says. “The banks are not in the business of protecting criminals, we will obey the law… but we expect the tax authority to be rational and prudent in its requests.”
Clearly, transparency is a priority for Chile’s government. In April, the salaries of all public officials were published on the Internet as the result of a new law requiring full transparency in public institutions.
“My salary as advisor to the minister was published on page B2 of the newspaper… so why shouldn’t the tax authorities, who are responsible for making sure we all pay our taxes, have… access to my bank account information?” asks Lehuedé.
“The benefits of being in the vanguard of transparency are far greater than the status quo,” insists Poniachik. Chile is a small country and one of its competitive advantages is its reputation for transparency, she points out. “Our partners expect us to have the highest standards and there are no excuses not to.”
Julian Dowling is a freelance journalist and contributes regularly to bUSiness CHILE.
Limiting Bank-Client Confidentiality
By Por Julian DowlingPrintSend to friend
Chile’s bid to become a member of the OECD - and sign a double taxation agreement with the U.S. - hangs on a bill, presented to Congress at the beginning of May, to give the tax authorities access to Chileans’ bank accounts.
Think of a tax haven and names like Bermuda or the Cayman Islands spring to mind, but not Chile. Yet, in April, Chile found itself on a so-called ‘grey list’ of countries, including Austria, Switzerland and Singapore, that have not yet implemented a key article of the OECD Model Tax Convention to allow exchange of information for tax purposes.
Tax evasion has become a focus of the Organisation for Economic Co-operation and Development (OECD) in recent months as part of the global trend towards greater transparency in financial transactions. The G-20 meeting in London in April, during which the list was issued, also gave a strong signal that being a good global citizen includes removing obstacles to financial transparency.
Although the international financial crisis was not caused by bank-client confidentiality, it has shaken public confidence in the banking system and restoring this trust is a priority of governments worldwide. In addition, ensuring that all countries play by the same tax rules would let cash-strapped governments track down tax avoiders and help pay for expensive economic stimulus plans, points out Nicola Bonucci, the OECD’s director for legal affairs.
Chile is not considered a tax haven, he says, and has more to gain than lose from complying with the OECD standard. “We don’t believe it’s a revolution, it’s more of an evolution.”
At the beginning of May, the government did, in fact, present Congress with a bill that would allow the national tax service, the Servicio de Impuestos Internos (SII), to access Chileans’ bank account information and share it with other countries’ tax authorities.
If the bill passes - and it is expected to do so fairly quickly - Chile will be taken off the list and meet a key condition for OECD membership. “But this is not only about the OECD,” says Karen Poniachik, a former minister of mining and Chile’s representative in negotiations with the OECD.
“We have to pass this legislation to keep up our position abroad as one of the more transparent countries,” she says. “It’s the direction the world is going, so why should Chile be left behind?”
The SII already collects information about the salaries, investments and assets of taxpayers. Only bank account balances and transactions are off-limits for the authorities unless a court rules there is sufficient evidence of criminal activity like drug trafficking, money laundering or terrorism.
“We’re currently able to exchange information with other countries in 90% of cases, but this law is designed to address the other 10%,” says Poniachik.
The limits of privacy
The Bachelet administration wants Chile to become a member of the OECD before the end of its term in March 2010 and achieving this requires legislating against companies suspected of bribery and improving the corporate governance of state-owned companies like Codelco, but falling into line with the OECD’s exchange-of-information rules is by far the most important condition.
It would also pave the way to signing a double taxation avoidance agreement with the United States. Chile has 20 such agreements in force with countries including Canada and the UK, but agreements with the U.S., as well as Australia, have stalled on the issue of bank-client confidentiality.
“The double taxation agreement… is a natural development after the Chile-U.S. Free Trade Agreement,” says Ricardo García, president of AmCham and AIG’s Chilean subsidiary Seguros Interamericana. “It would improve the flow of investments, in particular Chilean investments in the U.S.”
But there is the matter of privacy, a right enshrined in Article 19 of Chile’s constitution, points out García, who also adds that giving public officials access to bank account information would increase the possibility of its misuse. “But being a transparent country aligned with OECD standards and double taxation agreements is not incompatible with respecting the rights of citizens,” he says.
Indeed, Chileans need not be concerned about their privacy under the new law, says Héctor Lehuedé, tax policy advisor to the finance minister. “This does not mean an end to confidentiality… the SII already manages confidential information without disclosing it.”
It’s true that the new bill gives the SII access to bank accounts in non-criminal tax matters as requested by the OECD, but clients would have the right to object, at a judicial hearing, to the disclosure of their information to the SII or any foreign tax authority.
After the SII sends a request for information, the bank would have to inform their client in writing, and the client would then have ten days to decide whether to accept or reject the request. If rejected, the SII would have to go to court to get judicial authorization to access the information.
Residents of other countries like the U.S. and Canada do not have the option of going to court, but it is acceptable to the OECD “provided the procedure is a speedy one,” says Bonucci.
“We have always said that access to banking information can be through direct or indirect means, and indirect means could include an administrative or judicial proceeding,” he explains. “On request does not mean on demand.”
One of the key objections in Chile to allowing the SII broader access to banking information has been that, under present legislation, it is the SII itself that rules on appeals on tax matters. Now, however, independent Tax and Customs Courts are being created, although some may not be ready to hear cases in parts of the country until 2012 (and, in the interim, requests for judicial authorization under the new law would be heard by the civil courts).
Considering that Chile is not a tax haven, the authorities do not expect frequent requests for information from other countries’ tax authorities. Spain, for example, receives about ten requests a year. “Like Spain, we don’t expect much interest from other countries, but we must have the same standard,” says Lehuedé.
The advantages of transparency
By reciprocity, the law will potentially give the SII access to information about Chileans who may be avoiding local taxes via foreign bank accounts. This will make tax collection more efficient and give Chilean taxpayers confidence that everyone is being treated equally under the law, argues Lehuedé.
“There is no direct relation between access to banking information and a reduction in tax evasion,” says SII director Ricardo Escobar, “but it is an addition to our toolbox for ensuring taxes are paid.”
Tax evasion will never end, he admits, but better regulation can reduce it. “That helps make a healthier economy in which companies that do comply do not face unfair competition from those that don’t pay their taxes,” he says.
Of course, this depends on the cooperation of the banks. The new law will mean more work and higher costs in collecting information about clients and passing it on to the authorities, says José Manuel Montes, head of the legal department at the Association of Banks and Financial Institutions (ABIF).
Most of the information likely to be requested is available at the click of a button but some cases could be more complicated. That is why European banks have asked to be reimbursed by the state for this service, says Montes.
“There is a risk that (the SII) could go on fishing expeditions asking the banks for information on 100,000 clients in the hopes of catching one cheating, but we hope this doesn’t happen,” says Montes.
To avoid this, requests should only be made in specific cases where an investigation is warranted, he says. “The banks are not in the business of protecting criminals, we will obey the law… but we expect the tax authority to be rational and prudent in its requests.”
Clearly, transparency is a priority for Chile’s government. In April, the salaries of all public officials were published on the Internet as the result of a new law requiring full transparency in public institutions.
“My salary as advisor to the minister was published on page B2 of the newspaper… so why shouldn’t the tax authorities, who are responsible for making sure we all pay our taxes, have… access to my bank account information?” asks Lehuedé.
“The benefits of being in the vanguard of transparency are far greater than the status quo,” insists Poniachik. Chile is a small country and one of its competitive advantages is its reputation for transparency, she points out. “Our partners expect us to have the highest standards and there are no excuses not to.”
Julian Dowling is a freelance journalist and contributes regularly to bUSiness CHILE. 
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