AEOI building confidence in Latin America tax transparency 

Transparency is improving in Latin America - the region has leveraged transparency and the exchange of information (EOI) to fight tax evasion. However, more work is needed to shine a light on offshore wealth. 

The OECD’s Punta Del Este Declaration, which encourages data sharing through EOI among Latin American countries, shows that tax transparency is on the rise. The Declaration published the Tax Transparency in Latin America 2022 report in May, highlighting that those countries are improving, but still have work to do to reach global benchmarks in taxation and transparency. 

“The monitoring and co-operation network of the Global Forum on Transparency and Exchange of Information for Tax Purposes has strengthened the exchange of experiences between tax administrations and capacity building in the region, helping us better face the challenges of international tax transparency,” said Elízabeth Guerrero Barrantes, Chair of the Initiative and Vice-minister of Revenue of Costa Rica. 

Following a global trend towards transparency measures, such as the exchange of information on request (EOIR) and the automatic exchange of information (AEOI), governments see the potential benefits of leveraging these measures – notably, we are seeing a similar trend in Africa. 

Where Latin America stands on tax transparency 

The OECD report shows that significant steps have been taken in 2021 on the baseline and complementary actions agreed on in 2020, which are raising political awareness and commitment, strengthening tax administrations and developing capacities, broadening of EOI networks, increasing the use of EOI, and advancing the wider use of treaty-exchanged information. 

Recent wider achievements of this regional initiative over the years include: 

• The Convention on Mutual Administrative Assistance in Tax Matters, a multilateral instrument to tackle tax abuse, has been ratified by 14 countries. In signing the agreement, these countries have expanded their networks of EOI relationships.
• 10 countries are already carrying out the AEOI.
• 6 out of 8 countries assessed in the second round of peer reviews of the EOIR until 2021 were rated ‘largely compliant’, showing a positive trend in the implementation of the EOIR standard, which includes advanced beneficial ownership requirements.
• More than 1,650 tax officials have been trained since 2020. 

What the results mean 

The 2022 report shows the progress Latin America is making in tackling tax evasion and other financial crimes. The results show that the region is moving towards increased transparency. Steps in a positive direction include: 

• Improved EOIR performance in 2021.
• Advancements in the beneficial ownership standard.
• Broader implementation of AEOI under the Common Reporting Standard (CRS), with Ecuador becoming the 11th country to exchange reciprocally.
• Solidified EOI infrastructures and networks.
• Wider use of treaty-exchanged information for non-tax purposes to address crime and corruption. 

Yet, many challenges remain, including technical issues, having the right expertise, and using the available transparency frameworks. 

Corporate and personal tax evasion remains high, with a significant share of Latin America’s wealth estimated to be held offshore, meaning that tax authorities are losing out on much-needed revenue. 

The average tax-to-GDP ratio for the 16 countries covered in the Tax Transparency in Latin America report remains low in international comparison, at 19.8% compared to the OECD average of 33.5% for 2020.  

Governments can still unlock new streams of tax revenue. 

The future of tax transparency in Latin America 

The region will likely follow the global trend, which is accelerating towards transparency. In a post-pandemic context, where pressures on government finances only continue to rise, transparency and technology initiatives will only gain popularity. 

The OECD highlighted that through voluntary disclosure programmes launched prior to the first automatic exchanges, EOI and offshore investigations, at least €25.7 billion additional revenue (tax, interest and penalties) have been identified in the region since 2009. 

Additionally, the Latin American countries have reported collecting revenue totalling €3.6 billion as a direct result of EOIR between 2009 and 2021. 

There are opportunities for authorities to access hidden financial flows. Measures such as AEOI can encourage disclosure, strengthen tax compliance, and consequently increase tax revenue. However, the region must navigate obstacles in their transparency frameworks. 

Case Study: Panama 

Panama was one of the first countries to commit to AEOI in September 2017 and since that time, it has stayed up to date with a range of emerging international standards. The country’s tax authority engaged with us to deliver a technical solution to meet both its first round of FATCA and CRS exchanges. 

Our team delivered this project through onsite visits from technical analysts, as well as remotely with direct support from our head office. This allowed us to carry out the necessary dialogue with the tax authority to ensure that all communication was clear.  

We completed this project in around five months, providing technical expertise, technological support, and accurate translation to Spanish of our solution. 

Following the successful implementation, Panama gained the ’early adopter’ status for CRS amongst the OECD countries and the wider tax authority community.