“Swiss Leaks”: The Argentine Tax Authority’s Instructions to Unify Procedural Guidelines and the Bicameral Committee Proceedings

1. Precedent: Argentine Tax Authority General Instruction 1/2015

On February 20, 2015, General Instruction (DGI) 1/2015 was issued (either “Instruction No. 1” or the “First Instruction”) which aimed to unify the procedural strategy to identify bank accounts in Geneva, Switzerland, which were allegedly not declared by Argentine tax residents. The “imminent statute of limitations of 2006 fiscal year”, caused the Tax Authority’s rapid intervention as well as the existence of “some differences in the procedural treatment of the cases referred to several jurisdictions”. Instruction No. 1 was the first attempt to minimize these differences.

However, the Argentine Tax Authority (“AFIP”) agreed in the text introducing the procedural guidelines refined by Instruction (AFIP) 2/2015 (either “Instruction No. 2” or the “Second Instruction”) that the prior attempt to address the problems arising was not enough; therefore, it was necessary to continue consolidating criteria between the different jurisdictions of the Tax Authority, adapting the guidelines’ content to the instructions issued.

2. Presumptive income

The First Instruction put an end to the differences arising from the application of the concept of “unjustified wealth increase”. This instruction adjusted fiscal actions to what is prescribed by the Regulatory Decree of the Income Tax Law (which states that these adjustments must be allocated to the period in which they occur). To such effect, the first point stated that: “The presumptive income reached by income tax originated by the unjustified wealth increase -upon the terms of Section 18 paragraph f) of Law No. 11,683, text ordered in 1998 and its modifications-, will be equal to the difference between the bank account balance involved at the end of the fiscal year as of 2006 and the one associated to the beginning of that period”. In substance, the Second Instruction confines itself to indicating that such income shall be the difference between the bank account balance involved at the end of the fiscal year 2006, and the bank account balance of the same bank account at the end of the fiscal year as of 2005 (to the extent that the referred account has not been duly declared).

Similar difficulties existed with the presumptive income reached as “omitted income”. Point b) of the First Instruction set that “the presumptive income reached by the income tax law caused by the omitted income –upon the terms of the second paragraph of Section 18 of the of the Tax Procedure Law- originated by bank accounts with movements during the fiscal year 2006 must not cover the opening balance”. Thus, the parameter to be considered was actually modified. This income, according to Instruction No. 2, has its origins not in the existence of bank accounts with movements during the period, but in the higher balance detected in them, without considering the amount in the bank account at the beginning of the period (and provided that the referred bank accounts have not been duly declared).

3. Involved parties

Instruction No. 1 Section c) ruled that in cases where the AFIP initiated a claim against all the involved parties in a bank account, attributing to all of them the total amount, the tax liability should be assigned as a whole to one of them, or proportionally distributed, applying the mechanisms which better reflect the reality of facts.

Nevertheless, the Second Instruction, which replaced the first one, completely removed this section. 

4. Acceptance of the tax claim

Instruction No. 1 determined that if any of the above mentioned parties accepted the claim, all other determination procedures related to the same bank accounts would be concluded. The modification introduced by Instruction No. 2 becomes relevant because it states that in the event of total acceptance of the tax claim, the termination of other procedures is not automatic; instead, it will be necessary to “analyze the circumstances of each case in order to adopt all the necessary measures to safeguard the fiscal credit” before such termination.

5. Criminal actions

In relation to this matter, both instructions reproduced what is stated in Section 20 of the Criminal Tax Law (Law No. 24,769), under which if a criminal case is initiated, the AFIP cannot impose administrative sanctions (fines) until a final judgment in the criminal court is ruled on.

6. Spontaneous declaration of currency and assets

None of the instructions made specific reference to the fact that adhering to the regime provided by Law 26,860 (spontaneous declaration of foreign currency in the country and abroad) generates release of responsibility for violations included in such regime, from any civil, commercial, criminal, administrative, and professional actions that may be applied.

Moreover, both instructions include guidelines to be considered in relation to the regime established by that law.

Regarding the First Instruction, the spontaneous declaration “must be linked to the bank account balance as of April 30, 2013, or to the one derived from existing assets at that date purchased with funds from the bank account detected by this Agency”.

According to Instruction No. 2, to access to the benefits under the law, “spontaneous declaration of foreign currency shall not be less than the amount of foreign currency derived from the tax adjustments, which means the identity of their nominal amounts”.

In both cases, if the spontaneously declared foreign currency is lower, taxes corresponding to the difference of the foreign currency shall be determined.

7. Subsequent fiscal years while statute of limitations is still running

According to The International Consortium of Investigative Journalists,[1] to whom the information taken from the subsidiary of the HSBC bank was given, the data collected gathers information until 2007. This is the reason why the Argentine Tax Authority did not audit fiscal periods beyond 2006.

Nonetheless, the Argentine Tax Authority may audit subsequent fiscal periods. In relation to the promotion of actions to audit subsequent fiscal years whose statute of limitations are still running, the Second Instruction replaces the optional “where applicable” for “in all cases” “actions to audit fiscal years which statute of limitations are still running on the basis of facts and evidence submitted in each case”.

8. The Bicameral Committee and the outflow of currency

Law 27,094 created a Bicameral Committee which operates in the Argentine Congress to detect schemes implemented to facilitate the opening of bank accounts abroad for purposes of tax evasion and outflow of currency.

This Committee is made up of five Congressmen representing the people of Argentina and five Senators. The Committee’s objective is to “Investigate the methods of a scheme implemented to facilitate the opening of bank accounts abroad, by economic agents who are Argentine taxpayers, manage them and cover up their existence in order to promote tax evasion of such agents and the currency outflow caused by such behavior”. In order to comply with its objectives, the Committee seeks to “identify the economic agents involved in the fiscal default, as well as banking and/or financial institutions that have structured a system to violate the current tax and exchange rules in the country”.

The Committee met with several entities which regulate the banking, financial and exchange market, as well as entities authorized to operate in those markets. It also met with experts, directors and auditors of the bank under investigation for the illegal practice. According to the Law, the Bicameral Committee must prepare a report with all the information gathered to be published within 90 calendar days after its creation, extendable only once for the same period of time. The Committee has the authority to file complaints if they discover possible infringements of Argentine Law. It also has the authority to assess Congress on the convenience of modifying existing banking, financial, foreign exchange and trading laws in the event of noticing any tax evasion or capital flight systematic behavior performed by those entities.

In June 2015 members of the Bicameral Committee and Ricardo Etchegaray, in representation of the AFIP, traveled to Paris to meet with Hervé Falciani, a former employee of the HSBC bank who accessed the information that led to the detection of what appears to be Argentine residents’ bank accounts registered in Switzerland but not yet declared to the AFIP. It is clear now that the Argentine Congress and the AFIP will continue with the investigations already being carried out.

[1]http://www.icij.org/project/swiss-leaks/explore-swiss-leaks-data