INFO T A X – Fe b r u a r y 2017 INTERNATIONAL T A X TRANSPARENCY ACT I. THE NEW ACT ON INTERNATIONAL TAX TRANSPARENCY INFOTAX – February 2017 International Tax Transparency Act The new Act on International Tax Transparency. Recently Act No. 19.484 on International Tax Transparency and Prevention of Money Laundering and Financing of Terrorism was published in the Official Gazette (hereinafter “the Act”) (see the text on the following link: [CLICK HERE]). As we previously informed in our InfoTax of August 2016 (see the report in the following link: [CLICK HERE]), the Act responds to the international commitments assumed by Uruguay in order to adopt the guidelines and directives issued in those matters by the Organization for Economic Cooperation and Development (OECD) and the Financial Action Task Force (FATF). INFOTAX – February 2017 International Tax Transparency Act General structure. The Act is structured in four chapters: (i) Automatic report to the Tax Authority of balances and income from financial source, (ii) Identification of the beneficial owner and owners of nominative shares, (iii) Rules applicable to entities which are resident in countries or jurisdictions of low or null taxation, or who are benefited from a special regime of low or null taxation, and (iv) Adjustments to the transfer price regime. II. AUTOMATIC REPORT TO THE TAX AUTHORITY OF BALANCES AND INCOME FROM FINANCIAL SOURCE INFOTAX – February 2017 International Tax Transparency Act Background. The Act states the obligation for certain financial entities to report to the Tax Authority (DGI), on an annual basis, certain financial information related to accounts duly identified held by individuals, legal entities and other entities which configure tax residency in Uruguay or in another country or jurisdiction. The Act has two key purposes: compliance with the commitment assumed by Uruguay in relation to the agreed international standards on transparency and exchange of information, and also the provision of certain information to the DGI in order to allow such authority to comply with its own tasks. INFOTAX – February 2017 International Tax Transparency Act Entities obliged to report. Resident financial entities, . Uruguayan branches of non-resident financial entities, It is understood as financial entity obliged to report: (i) Those who develop financial intermediation, (ii) Those who develop custodial activities or investments on behalf of third parties, even when they are not subject to the supervision of the Uruguayan Central Bank (BCU), (iii) Insurance entities, in relation to certain insurance agreements and life annuity agreements. INFOTAX – February 2017 International Tax Transparency Act Information to be reported. The obliged financial entities must annually report to the DGI. The information to be reported makes reference to accounts duly identified held by individuals, legal entities or other entities, which have its tax residency in Uruguay or in another jurisdiction. The information comprehends: (i) The account’s balance or value at the end of the civil year and also the annual average within such year or the cancellation of the account, (ii) Any profit obtained through the account’s balance or value, or through financial assets which are custodied or invested on behalf of third parties, disregarding its nature or denomination, INFOTAX – February 2017 International Tax Transparency Act Information to be reported (cont.). (iii) Beneficial owner, in case of accounts whose accountholders are considered passive non-financial entities or entities with high risk in matter of tax evasion, following the criterion to be determined by the Government. INFOTAX – February 2017 International Tax Transparency Act Excluded entities and accounts. The Government can exclude certain financial entities from the obligation to report considering the entity’s objective and its low tax risk, and also establish different terms for compliance. In the same manner, the Government can exclude certain accounts from the obligation to be reported considering its low tax risk due to its nature and amount, and also establish different terms for compliance taking into consideration the residency of the account holder and the balance’s amount. INFOTAX – February 2017 International Tax Transparency Act Obligation to identify tax residency. The obliged financial entities are obliged to identify the tax residency of the individual, legal entities or other entities which are their account holders, and also the beneficial owner, if corresponds. To said purposes the Government will determine the due diligence proceedings to be executed by the obliged financial entities. There is a prohibition to open new accounts or to issue debt instruments without comply, among others, with the requirement to declare to the financial entity the tax residency of the individual or legal entities and also the beneficial owner, if corresponds. INFOTAX – February 2017 International Tax Transparency Act No banking secrecy and other limitations. Confidentiality. It is not possible for the financial entities to argue banking secrecy and/or any other limitation before DGI to avoid the compliance with the obligatiosn set forth by the Act. The limitations stated trhoughout the Personal Data Protection Act (No. 18.331) are not applicable, despite the right of the individual to request access to its information in order to control, verify or rectify such data. The information provided is confidential and must be treated as such by DGI, who can use it for the compliance of its own tasks and also for the exchange of information with foreign tax authorities. INFOTAX – February 2017 International Tax Transparency Act Penalties. Remark, warning, Omission in sending the information fine up to aprox. USD 230.000 Sending information in Remark, warning, wrong or incomplete manner fine up to aprox. USD 230.000 Breach of the due diligence proceedings Remark, warning, fine up to aprox. USD 230.000 INFOTAX – February 2017 International Tax Transparency Act Entry into force. The obligations stated in the Act entered into force on January 1, 2017. In order to comply with international commitments Uruguay will exchange on 2018 information related to the fiscal year 2017. INFOTAX – February 2017 International Tax Transparency Act III. IDENTIFICATION OF THE BENEFICIAL OWNER AND OWNERS OF NOMINATIVE SHARES INFOTAX – February 2017 International Tax Transparency Act Background. The Act is intended to ensure the availability of information related to the identity of the beneficial owners of legal entities and also the identification of the shareholders with nominative shares of companies with nominative or book-entry shares, limited partnerships, agrarian associations or any other legal entity authorized to issue nominative shares. The Act takes into consideration the recommendations made by the FATF (Recommendations No. 24 and 25 of February 2012) and the Global Forum (Terms of Reference 2016 adopted at the meeting held on October 26th/27th, 2014 in Germany). INFOTAX – February 2017 International Tax Transparency Act Obligation to identify the beneficial owner. Since January 1st, 2017 certain entities are obliged to identify the beneficial owner, counting with the corresponding supporting documentation. It is considered as beneficial owner the individual that, directly or indirectly, owns at least 15% (fifteen per cent) of the capital stock or its equivalent, or voting rights, or which through other means has the final control over an entity (such as a legal entity, a trust, an investment fund or any other patrimony of affectation or legal vehicle). INFOTAX – February 2017 International Tax Transparency Act Entities obliged to identify and report. The entities obliged to identify and report are the following: (i) resident entities, (ii) non-resident entities, provided that they met any of the following requirements: (a) operate in Uruguay through a permanent establishment, (b) locate within Uruguayan territory the place of its effective management for developing business activities in the country or abroad, and (c) have assets located in Uruguay for a value that exceeds UI 2.500.000 (two millon five hundred thousand Index Units, aprox. USD 320.000) according to the valuation rules of the Tax on the Income of Economic Activities (IRAE). (iii) foreign investment funds and trusts whose administrators or trustees are residents in Uruguay. INFOTAX – February 2017 International Tax Transparency Act INFOTAX – February 2017 International Tax Transparency Act Excluded entities. The entities excluded from the identifying and reporting obligation are the following: (i) entities whose shares are quoted on national stock exchanges, international renowned stock exchanges or in other procedures of public offer, provided that such shares are available for its immediate sale or acquisition in the referred markets, (ii) investment funds duly incorporated and supervised in their country of residence, according to the criterion to be determined in the regulation, and (iii) joint ownership, community property and community property regulated by the Concubinage Act. INFOTAX – February 2017 International Tax Transparency Act Exceptions to the reporting obligation. The following entities are not obliged to report: (i) personal entities or agrarian associations whose shares are wholly owned by individuals, provided that such individuals are the beneficial owners, (ii) de facto business associations or civil associations whose members are only individuals,