This is the second of a series of two blogs in which we present an overview of some of our findings in relation to countries’ various commitments to administrative assistance under the (amended) multilateral Convention on Mutual Administrative Assistance in Tax Matters (MAAC). In the first blog, we delineated the role the MAAC plays in the LAC region, and also explored how the region is performing in commitments related to the assistance in the collection of tax debts. In this blog, we examine a different dimension, which is how the region is performing in relation to the commitment to exchange information beyond income tax. Both analysis are based on the research conducted for the Financial Secrecy Index.

Exchange of information beyond income tax

A second reservation option in the MAAC that has remained largely under the radar is the option (provided in Article 30(1)(a) of the MAAC) for countries to restrict their commitment to exchange of information. The MAAC provides that exchange of information for income tax and wealth tax is compulsory for parties to the MAAC.

For other types of taxes, like subnational taxes, social security contributions, inheritance and gift taxes, consumption taxes or special taxes on goods and services such as excise taxes, countries may opt-out from exchanging information. The only consequence of the opt-out is that the country using the reservation will also not receive information to enforce its own tax of the same kind.

Our research shows that the use of this reservation is widespread among parties to the MAAC, and also by the LAC countries.

Table 2 – MAAC reservations on exchange of information

The use of this reservation is problematic because it makes the MAAC not suitable for exchange of information for the purpose of enforcing digital services taxes or inheritance taxes. More than in the case of collection assistance, bilateral tax treaties can provide an alternative basis. All bilateral tax treaties contain exchange of information clauses, and in most treaties, these clauses expressly cover all taxes and not just taxes on income (and capital).

However, the existing bilateral tax treaty network does not represent a desirable alternative to a fair and efficient multilateral instrument. On the one hand, bilateral treaties would currently reduce significantly the number of countries with whom exchanges take place. Certain OECD countries have over 100 bilateral tax treaties in place. Except for outliers like Mexico (61), Chile (38), Brazil (37) and Venezuela (33)[4], most LAC region countries have a very limited number of tax treaties in place. Thus, existing bilateral tax treaties are insufficient to mimic a multilateral legal ground for a multilateral solution for information exchange in relation to digital services taxes or inheritance taxes. As previously noted, expanding that bilateral network might not be possible or even desirable in some cases.

Here too, countries may want to revise their stance against a multilateral commitment to exchange information of non-compulsory taxes under the MAAC.

On the plus side, an often-overlooked fact is that the MAAC explicitly assigns ‘taxes on net wealth’ as a type of tax for which exchange of information is compulsory by all countries party to the Convention, currently not less than 150 countries.

This means that, unlike in the case of DSTs or inheritance taxes, the MAAC can be used for countries to request exchange of information on offshore assets for the purpose of enforcing a national net wealth tax.

More importantly, the MAAC could eventually also serve as the legal basis for a multilateral competent authority agreement for the automatic exchange of information on non-resident owned assets for net wealth tax purposes, in the form of a Global Asset Registry (GAR). Ideally, this Global Asset Register should be streamlined under the auspices of the upcoming UN Framework Convention on International Tax Cooperation

In the context of the Latin American and Caribbean Tax Cooperation Platform (PTLAC), the recently commenced Brazilian presidency has committed to start a dialogue among regional tax authorities regarding an asset register. The experience of the MAAC, with its achievements and limitations, could provide important inputs to further this agenda.

Time to review the reservations

Despite its shortcomings, by becoming parties to the MAAC, several LAC countries have gained access to a much wider and more efficient network for the exchange of information and mutual administrative assistance. Nonetheless, our research shows that the region’s integration into this mechanism has not been without flaws. Rather than adopting the strongest forms of administrative assistance and information exchange, several countries have weakened their commitments by introducing carve-outs and reservations.

In this blog, we argued that it is time for the region to reconsider its stance not only on administrative assistance in the collection of tax debts but also on the exchange of information beyond income taxes. While these reservations can, to some extent, be traced to institutional culture, they now represent an impediment more than a safeguard. In the context of growing cross-border mobility of assets and income from individuals and corporations, a broader commitment would provide access to a more powerful set of tools, tools whose importance is steadily increasing.

This issue is particularly relevant for Latin American countries advocating for a more progressive tax agenda, especially the effective taxation of high-net-worth individuals. In the world’s most unequal region, this is a matter of critical importance and demands not only a redesign of tax laws but also of the instruments available to tax authorities for implementing those laws. Cooperation in the enforcement of tax debts might not only desirable but often essential in the case of certain segments which are particularly mobile.

Reconsidering this position is crucial not just for the domestic enforcement of tax laws, but also for upcoming negotiations, particularly within the context of the UN Framework Convention on International Tax Cooperation. These negotiations offer countries an opportunity to align their political priorities with the rules and mechanisms they promote in international tax cooperation. It would be important for LAC countries to echo the concerns of others in the Global South, who have consistently advocated for more inclusive and effective mechanisms of mutual administrative assistance and information exchange. The region could and should play a role in upcoming negotiations, which are set to take place in August and November this year, and are usually livestreamed for all stakeholders. Interested parties can find more information regarding the upcoming negotiations here.

[4] These numbers are based on the IBFD Tax Treaty Database. You can also find useful information in CIAT’s tax treaty database.

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