Uruguay faces uproar over new taxation law

MONTEVIDEO, Uruguay, May 27 (UPI) -- Uruguay faces an uproar over a new taxation regime that could require residents to declare all their assets outside the Latin American country.

Legislation proposed by the government of President Jose Mujica is intended to bring Uruguay into line with ambitious transparency targets set by the Organization of Economic Cooperation and Development, the 31-nation club of the world's leading industrial states.

Uruguay isn't a member but, since Chile's induction into OECD on May 7, Montevideo has been vying with other Latin American countries to qualify as a member.

Critics of the government's enthusiastic embrace of the stringent tax regime say Uruguay doesn't need to get so tough on its residents -- citizens or foreigners who live in the country.

Uruguay is rated one of Latin America's least corruption-prone countries, as judged by Transparency International campaign group. When it comes to funds stashed away from the grasp of Uruguayan tax collectors, however, anger and frustration is widespread.

Economy Minister Fernando Lorenzo indicated the government would go ahead with new legislation despite its potential to divide supporters of newly installed Mujica. The bill could become law very soon, officials said.

Affected by the impending legislation are deposits held outside Uruguay by residents, whether citizens or foreigners, as well as asset holdings of non-resident companies.

Uruguayans who take part in non-resident companies will also be asked to account for their income and payroll tax.

"Once the bill is approved residents in Uruguay will have to pay income and wealth taxes on overseas income and from their share of assets in financial or other investments overseas," said Lorenzo.

Uruguayan residents have at least $8.18 billion deposited overseas, figures cited by the Bank for International Settlements showed. Among legislative changes proposed are new requirements related to bank accounts currently considered secret.

Information on bank accounts and deposits in Uruguay will remain protected by law unless it was required to be revealed in response to a formal request approved by a judge, he said.

OECD rules have already split the world into at least two categories -- countries with transparency of financial transactions and "gray area" nations suspected of shielding account and deposit holders suspected of evading tax.

OECD is involved in a global campaign to promote transparency and exchange of information for tax purposes and publishes black and gray lists of countries considered tax havens.

The first verbal shots were fired in a controversy likely to become more intense. "Uruguay is accepting pressure from rich countries and the government is not defending the interests of Uruguayans," said Conservative leader Pedro Bordaberry.

He said rich countries such as the United States and Argentina "are interested in having information on our holdings and on our wealth," MercoPress reported.

He said, "We are admitting that they have won us, we are accepting pressure from rich countries which has increased significantly lately because of the international crisis."

He said Uruguay should have stood firmly and made sure foreign residents do not get double taxed.

"This government has handed over fiscal sovereignty to the pressure of rich countries," said Bordaberry.

Former Deputy Cabinet Chief Leonardo Costa pointed out "the bill is not clear as to whether it will be criminal or civil courts that will decide on lifting bank deposits information."

He said Uruguay lacks specific courts for tax issues and will be at the mercy of the officials from the Revenue Office and their interpretation of regulations. That, in turn, would put pressure on the magistrates who don't have the necessary technical support, Costa said.

"According to the draft I have read taxpayers are left quite exposed and with limited rights. This is a very delicate terrain, since the country has a long tradition of protecting people's rights (human, civil, fiscal) and the only purpose should not be to have us out of the OECD gray list," Costa said.