Regional Tax Programme for Central and Latin America
Many Latin American countries are now major players in the world economy and account for an important part of global investment. They are amongst the largest trading partners of and recipients of inward investment from OECD countries. Some Latin American countries (such as Brazil and Chile) are also major sources of intra-regional trade, while investment flows in Latin America continue to increase. At the same time, most Latin American countries are making fundamental changes to their taxation of cross-border income flows. Most of the dynamic economies in the Latin American region have abandoned the principle of territorial taxation and introduced taxation based on the world-wide income of resident taxpayers. This reform has brought a new approach towards the negotiation and conclusion of tax treaties. Prior to the reform most Latin American countries saw no need for the negotiation of tax treaties: they are now rapidly trying to build up or expand their tax treaty networks. The OECD Model Tax Convention is often the basis for treaties.
The rapid expansion of tax treaty networks presents Ministries of Finance and Tax Administrations in these countries with major questions of interpretation and application of international tax principles. The risks of misunderstandings and conflicts are self-evident, both between countries and regional groups. Staff dealing with international taxation issues must be familiarised with the structure and the significance of tax treaties. More in depth experience in international tax matters, especially the Commentary to the Model Convention, the transfer pricing guidelines and the procedures for international exchange of information, is essential.
This programme is carried out in co-operation with the Inter-American Centre of Tax Administrations (CIAT), the Inter-American Development Bank and Member countries.
The regional programme for Latin America addresses the following issues: to enable senior officials from Ministries of Finance and Tax Administrations of Central and Latin American countries to negotiate and apply tax treaties; to achieve an equitable taxation of multinational enterprises; to combat international tax evasion and avoidance and to avoid and resolve international tax disputes. The programme also helps participating countries to defend their right to tax in a global economy.
to familiarise decision-makers in Ministries of Finance with the negotiation of tax treaties and the further development of tax treaty networks;
to increase tax administrators' knowledge of the application of tax treaty provisions;
to improve the knowledge of senior tax administrators in the theoretical basis and the practical application of the OECD Transfer Pricing Guidelines;
to facilitate the cross-border exchange of information between tax administrations;
to demonstrate cost-effective ways in which tax systems can be used to attract foreign direct investment.
In the long run the programme may encourage further development of globally accepted tax rules.
Because many of the participating countries play a leadership role in their region, this influence would extend well beyond the participants.
The following programme modules have been developed:
A series of seminars and workshops are offered on issues including
the general principles of international taxation
tax treaties and their application
the negotiation of tax treaties
special problems of international taxation (e.g. questions of thin capitalisation, taxation of permanent establishments, taxation of cross-border software payments, taxation of passive income, taxation of high-value services).
Work is also carried out to assist Central and Latin American countries to develop their own country models for tax treaty negotiations; to analyse changes in the treaty policy of the countries and compare different country models.
Expected outcome: At the end of the programme the participating countries will have received extensive training material which can be used for follow-up courses in the countries' national training programmes. A number of key officials in the Ministries of Finance and Tax Administrations will have broadened their knowledge and experience in the area of international taxation, with the objective of facilitating the negotiation of new tax treaties and the effective application of existing ones.
Central and Latin American countries are increasingly aware of the importance of transfer pricing for the taxation of multinational enterprises. The recent development of transfer pricing legislation in Brazil and a similar project in Chile are typical examples of the increasing importance transfer pricing represents in some of the major countries. The problems arising are the limited administrative ability to challenge the transfer pricing practices of MNEs, practical problems in obtaining the information needed to apply the arm's length principle and the lack of experience in analysing complex cross-border transactions to identify transfer pricing abuse. Building on work already done with CIAT in this area, a number of seminars and workshops will be organised to familiarise senior staff in the Tax Administration and Ministries of Finance with the content and application of transfer pricing guidelines and produce training material which can be used for domestic training in transfer pricing.
Exchanging information is an important and necessary method of counteracting international tax evasion and avoidance. The organisation of workshops will contribute to:
identify legal and practical obstacles to a more effective exchange of information and examining ways to remove them;
guarantee the confidentiality of the exchanged information;
promote the use of standardised forms and electronic standards, and
examine new ways in which the participating countries can pool information to combat international tax evasion and avoidance and how to discourage the use of tax havens.
As well as reducing conflict between tax authorities and that between tax authorities and MNEs, these workshops may lead to an adoption of two manuals on exchange of information. These manuals for tax officials are tailored by the OECD to the needs of the Central and Latin American countries.
In a global economy there is often no clear dividing line between issues of domestic and international taxation. Business transactions and arrangements affect both domestic and international taxation rules. Counteracting international tax avoidance and the taxation of financial instruments are two issues which directly affect domestic and international taxation rules and administrative practices. The module has a special focus on counteracting international tax avoidance and the taxation of financial innovation in a global economy.