A panel of local lawyers at Legal Week's first Private Client Forum Americas discuss the challenges with wealth management across a very diverse region

Javier Canosa, partner, Canosa Abogados, Argentina

"In Latin America, we are suddenly – as the Chinese say – living in a very interesting world. It's changing at a pace that is incredible, but very difficult to keep up with. 

"As tax planners, tax practitioners and wealth planners, we have to create and think about the best structure that can be drawn up in time and be predictable in the future for our clients. In this context, we have to understand the nature of both the client and where he comes from. 

"Latin America is often seen as one homogeneous piece of land. But it's actually very diverse, very different. Countries such as Argentina or Venezuela are certainly not the same as Brazil, Chile or Uruguay. Political issues are very important. Issues of legal risk and legal nature are also very important. 

"In the early 2000s, we saw – slowly, but steadily – a movement towards more governmental intervention, not only by requesting more information and looking for criminal activity, but also this whole idea that the government should regulate almost everything and intervene in the markets, while believing that people, companies and families should have a 'reasonable profit'. 

"In this sense, we have seen – in countries such as Argentina or others in the Latin American region – nationalisation of companies, the expropriation of real estate and restrictions on the operations of offshore companies, foreign companies and trusts. 

"The restrictions will be even more stringent in the future. Currently, we have a whole set of exchange controls. You cannot transfer money outside Argentina, for example. It's also very burdensome to bring money into Argentina, where there is a 30% withholding for one year."

Ricardo Leon Santacruz, partner, Sanchez Devanny, Mexico

"I would say in Mexico, we've got a very different landscape from that perspective and that's where we wanted to make the distinction between Latin America because you've got Mexico, Colombia and a few other countries – Chile for example – where you have open markets, uncontrolled release and flow of funds, no restrictions on foreign investment, and have open borders. It's very different. It transcends tax. It goes into politics. 

"I would say that if we want to do some self-criticism, which is definitely required, we obviously have our issues with security that are well-known. We definitely also have some issues with antitrust."

Kurt Rademacher, partner, Butler Snow, USA

"From a US point of view, it's important to keep in mind that the US is also a patchwork quilt of different legal jurisdictions and so one US state is not like every other US state. Although, outside the US that's certainly the case with a lot of incoming fund flows. 

"But as far as each of the states' legal systems are concerned, they're all different. Dealing with lawyers around the world on particular tax matters and property matters, lawyers sometimes view the US as one jurisdiction and it's important to keep in mind that we are just as much of a patchwork quilt as the rest of the world is. 

"As far as whether the US is becoming more or less interested in cutting off flows of funds and nationalising businesses, a lot of that depends on your perspective, but I think the objective answer is no. We're a fairly open country.

"We're welcoming to foreign flows of funds. But I will say that in relation to reporting – especially to inward investment into the US, and to US residents and citizens who have interests in offshore companies and offshore trusts – because the US is a place where most of our citizens don't even have passports, there is the view, especially after the Swiss banking affair, that any interaction with a foreign account is something that's inherently suspect. 

"So from the view of the IRS [Inland Revenue Service], when they look at these issues, they look at these people who have non-US connections at first glance as something suspect, then you have to talk them into believing that you're not really a criminal just because you have a foreign bank account."

JC: "So what do you think about these restrictions on foreign corporate vehicles in the US? As far as I know, foreign entities can easily open a bank account and so on here in the US. Correct?"

KR: "That's right. A great deal of reporting is required. Additional reporting and additional tax obligations – in particular, if it's an outbound corporation, so a controlled foreign corporation (CFC) that's controlled by five or fewer US shareholders. 

"We have CFC rules and there is a lot of reporting that goes along with that. The point of those rules is to try to dissuade people from using non-US corporations as a vehicle to allow income and gains to roll up tax-free for later distribution. 

"But the overriding theme is, as a country, we allow people to choose the entity that they would like to use and we don't place governmental restrictions on that. Yet we certainly place additional hurdles if you're using something based outside the US – reporting requirements and, in some cases, additional taxes, for instance."

RLS: "I would say that it's pretty much the same thing in Mexico – to the extent that you don't have a taxable presence there and there is really not much you have to do. If you want to open a bank account, there are some regulatory compliance requirements. Our anti-money laundering regime has become substantially enhanced, so we do have additional controls."

JC: "Let me clarify one thing. Taxable presence – for instance, if a foreign company owns shares in a Mexican company, that's not a taxable presence?"

RLS: "No, that's not a taxable presence. The only requirement that you would have there is that the Mexican entity that has foreign investment would need to report the foreign investor and give a little disclosure on information as to who that foreign investor is – country of citizenship, tax for information, tax ID number and the like. 

"It's a very simple, formalistic, form-driven notice. It's a notice, not a permit. Unless you go into certain restricted lines of business, I would say that in general we've got a very open economy.

"From the other perspective, I would say that probably we do have some anti-abuse provisions within our tax laws that in their origin came from a two-fronted approach. Initially, when Mexico came into our CFC regime, we started with a blacklist approach, taking an anti-abusive position.

"That same approach would apply to foreign investors coming into Mexico because of the potential for them being conduits for Mexicans taking money out. We had that anti-abuse blacklist approach. We have evolved within that approach and now have a comprehensive CFC regime, in parallel to what you would see in almost any other OECD [Organisation for Economic Co-operation and Development] country. 

"We have some anti-abuse provisions there, but I would say in general we don't have much restriction, except for some limitations to access a tax on net gains instead of gross income on dispositional stock or some other limited items."

JC: "In Argentina, foreign companies are seen as an abusive structure per se. Offshore companies have a burden of being abusive structures that is impossible to eliminate. The only way you could get away with that is use it as an SPV (Special Purpose Vehicle) and prove who the controlling shareholder is and prove the substantial assets of the controlling shareholder. 

"On a different subject – but one that also refers to this issue of barriers and restrictions – since the creation of the World Trade Organisation in the 1990s, we have had many bilateral investment treaties, double taxation treaties, and so on. Recently, the Argentine Government started to look at those treaties under a cashflow test. (In other words, whether I'm making money with the treaties or I'm losing money.) 

"So they terminated the treaty with Austria in 2008 and in 2012 we denounced – which is the actual word for the termination of a treaty – the treaties with Spain, Chile and Switzerland because they thought these treaties were being used in an abusive way. They are currently renegotiating these treaties. They have moved forward a lot with Switzerland and Spain, not Chile. 

"But of course, they're taking out all the terms of the treaties and most of these treaties follow the OECD model. The one with Chile follows another association that we are a member of, the Andean Pact. Yet they are renegotiating and taking off the clause the terms that do fiscal harm to the government and requesting information exchange agreements in return. 

"I believe, in Argentina, we will see more treaties terminated in the future. Take the case of the treaty with Finland, for instance. A lot of people are using the Finnish treaty for royalty purposes after the Swiss treaty was terminated. So, I think there will be fewer double taxation treaties in the future. Not to mention bilateral investment treaties."

KR: "We certainly have a broad network of treaties in the US, with a number of different jurisdictions throughout the world and we're continuously renegotiating those treaties over time. I think our real focus to combat treaty shopping is to concentrate on the limitation of benefits provisions in the treaty and see that those limitation of benefits provisions have enough meat on them to establish a true presence for the person trying to make use of the treaty. 

"In the future, I suspect our treaty network will only become larger. I don't see us contracting in that way."

RLS: "I would say the same holds true in Mexico. We've seen a continuous expansion of tax treaties and tax information exchange agreements. Mexico is pursuing tax information as a key tool for oversight and control of tax compliance. In our revision of some of our existing treaties, we are seeing a change of approach by the tax administration. Two examples in particular: the Dutch treaty and the Swiss treaty. 

"We are also seeing an expansion into regions where we once had no treaties and where we're trying to expand our treaty base, which I am very interested in. It's an expansion towards Eastern Europe and the Middle East. We did not have a single treaty with the Middle Eastern countries – now we have four new treaties. 

"We're not shying away from jurisdictions that, at other times, have been considered to be tax havens. The treaty with Hong Kong, for instance, was signed last year and published recently. So I would say we're going more with work on the treaties' potential advantage that in certain instances Mexico has vis a vis, for example, Argentina because we are in the OECD. We sometimes do have a little bit more leverage to get what we want as far as being able to negotiate our way into information."

For further information on Legal Week's Private Client Forum series, please email [email protected].