August 26, 2016 Let's Confer

U.S. – Latin America Tax Planning Strategies Conference

By Derek B. Wagner, Pro Bono Counsel, ABA Section of Taxation, Washington, DC

On June 8-10, 2016, approximately 200 tax practitioners from more than twenty countries throughout Latin America and across the world convened in Miami for the 9th Annual U.S.-Latin America Tax Planning Strategies Conference.  Organized by the ABA Section of Taxation in conjunction with the International Fiscal Association–USA Branch, the International Bar Association–Taxes Committee, the Tax Executives Institute, and the ABA Section of International Law, this conference offered three days of workshops and panel discussions focusing on issues relevant to tax practice in the United States and Latin America.  This article highlights just a few of the programs available during this three-day event.

Wealth and Asset Planning Workshop

The first day of the conference featured the Wealth and Asset Planning Workshop, which consisted of two panels addressing common tax planning issues encountered by practitioners whose clients live or hold assets in a foreign country.  The first of these panels, “Cross-Border Estates:  Do You Really Know How They Work?,” provided a crash-course introduction to multi-jurisdictional estate planning.  Speakers from Brazil, Mexico, Peru, Portugal, and the United States presented a case study to explore the myriad issues that frequently arise when formulating an international estate plan.  The hypothetical client in this case study was a Spanish citizen who lived in Portugal with his wife, a dual citizen of the United States and Spain, and who held assets and business interests in a number of additional countries.  The panelists laid out the issues associated with preparing an effective and tax-efficient transfer of the client’s assets upon his death; they broke down the income, estate, gift, and inheritance tax regimes in each of the countries represented on the panel and evaluated the benefits and potential snares associated with the hypothetical client’s various options.  The United States, for instance, is considered a high-tax regime with a maximum gift and estate tax rate of 40%. Absent a treaty provision stating otherwise, the regime’s more generous exclusions (such as the unlimited deduction for spousal transfers and the unified lifetime exclusion) are only available to U.S. citizens or U.S. residents.  Non-U.S. residents owning substantial U.S. real estate or other U.S.-situs assets, such as the panelists’ hypothetical client, may consider means to take advantage of these benefits, but must be cognizant of both the United States’ and their home country’s anti-avoidance rules before making any decisions.

The second part of the Wealth and Asset Planning Workshops, entitled “The Worst of Two Worlds – U.S. Tax Residents or Citizens with Assets in Latin America; Locals with Heirs or Assets in the United States,” focused on tax-planning strategies for U.S. residents with assets in Latin American countries and for residents of Latin American countries with ties to the United States.  The panelists used a series of hypotheticals to explore income and transfer tax laws, residency rules, and common investment structures for international clients.  The panelists looked at current trends and recent events impacting investment and tax planning strategies.  Of particular concern to many taxpayers is the increasing use by tax administrations of information-exchange agreements, which impose new reporting requirements and filing obligations on individuals and financial institutions in an effort to combat tax avoidance.  Recent developments, including the G20/OECD Base Erosion and Profit Shifting (BEPS) action plan and U.S. regulations under the Foreign Account Tax Compliance Act1 (FATCA) have made the need for careful attention to international tax-planning all the greater.

Tax Executives’ Perspective:  The Changing Tax World and Its Impact on Latin America

The past few years have seen significant political and economic change in Latin America.  The “Tax Executives’ Perspective:  The Changing Tax World and Its Impact on Latin America” discussed how such developments affect multi-national entities (MNEs) with operations in Latin American countries.  The panelists began by offering their views on the impact on MNEs of current events.  The panelists agreed that the ongoing political upheaval in Brazil has made significant tax reform unlikely for the foreseeable future, though talk of resuscitating a financial transactions tax has already surfaced.  Similarly, economic turbulence in Venezuela will likely translate into major losses for operations in that country in 2016.  The panelists also discussed the effects of the G20/OECD BEPS action plan.  Although only four Latin American nations are members of either organization,2 the panelists emphasized that these initiatives will have significant effects for both member and non-member countries.  The action plan seeks to combat tax revenue losses stemming from base erosion and profit-shifting activities of MNEs by implementing a coordinated series of items designed to more accurately align the location of taxable profits with the location of economic activity or value creation.3   These measures include model provisions to prevent treaty abuse and treaty shopping, standardized Country-by-Country reporting, improved dispute resolution mechanisms, tightening of Controlled Foreign Company rules, restrictions on interest deductibility, and efforts to improve the information available to tax authorities to apply their laws consistently and effectively.4   Panelists considered the compliance burden for these initiatives to be high and likely to create legal problems for taxpayers if tax authorities adopt inconsistent interpretations of the BEPS plan or if non-OECD member countries adopt different approaches or standards from those expressed in the plan. 

MNE tax transparency was another issue addressed by the panel.  Panelists noted that the tax-planning strategies of MNEs are more public now than at any time in the past, creating a need for enhanced public relations skills and assessment of disclosure impact as part of any tax-planning strategy.  Other topics covered during this ninety-minute panel included the anticipated effects of the proposed section 385 regulations and other anticipated changes in tax law or tax administration.

Tax Judges Roundtable:  The Investigative Powers of the Tax Authorities

The Tax Judges Roundtable brought together members of the judiciaries of several countries to discuss recent court decisions impacting the scope of and limitations on the investigative powers of tax authorities.  Many countries grant their tax authorities wide investigative powers.  The Honorable Rodolfo Facio, of Argentina’s Court of Appeals on Administrative Matters, and U.S. Tax Court Special Trial Judge Lewis Carluzzo discussed the basis of these powers in their respective jurisdictions.  In the United States, section 7602 grants broad authority for the IRS to summon books, records, and other documents in determining liability under U.S tax laws.   This authority, however, is subject to certain important limitations.  Section 7602(c) requires that the IRS provide notice to a taxpayer if a summons is issued to a third party in relation to the taxpayer’s liability.  Further, the IRS lacks independent authority to penalize noncompliance with a summons.  Rather, the IRS must seek enforcement of the summons in a U.S. district court.5

The Honorable Eugene P. Rossiter, Chief Justice of the Tax Court of Canada, presented a series of recent cases detailing when and to what extent Canadian revenue agents owe a duty of care to taxpayers under examination, and the consequences that ensue if that duty is breached.  In McCreight v. Canada6 and Leroux v. Canada Revenue Authority,7 the Canadian courts established a positive duty of care to taxpayers, at first only when criminal behavior is implicated but then more generally.  The duty of care creates civil liability when Canadian tax authorities fail to conduct their work in a reasonable fashion and with reasonable care.  In Revenue Quebec v. Group Enico, Inc.,8 for instance, the Court awarded damages to a taxpayer who was forced to close his business following what the Court described as an unreasonable abuse of power by the revenue authorities.  Under the doctrine of sovereign immunity, the panelists noted, judicial authority to fashion such rules is not unlimited, and varies from country to country.  In the United States, for example, the federal government is insulated from such suits absent explicit statutory waiver. 

For a full list of the panels offered during the 2016 U.S./Latin America Tax Planning Strategies Conference, please check out the program here.  The 2017 conference will be held in Miami on June 14-16, 2017.


2 Chile and Mexico are the only OECD countries; Argentina, Brazil, and Mexico are G20 countries.

3 See OECD/G20 Base Erosion and Profit Shifting Project, “Explanatory Statement” at ¶ 7 (2015), available at:  http://www.oecd.org/tax/beps-2015-final-reports.htm

4 Id. at ¶¶ 11-21.

5 IRC § 7604.