Capitalist oligarchy resist new tax regulations in Argentina

Federal Administration of Public Revenue building. Buenos Aires source Wikimedia Commons

Lisbeth Latham

The publishing of the Panama Papers in 2016 and in the last week the Pandora Papers have highlighted the systematic tax avoidance by multinational companies and rich individuals. In response, there has been a growing attention on the need for nations to close loopholes in their tax codes. This is due to the decline in tax revenue meaning that only is there less money available for social services, but being used as a justification for even more drastic reductions in government spending particularly those associated with social programs. While some of this focus has been at the level of multilateral cooperation, at the same time individual governments have considerable power to close loopholes in their own tax codes loopholes which enable global tax avoidance. Since 2020, the Alberto Fernández government in Argentina has introduced a range of new tax codes which have met with vigorous opposition from capital and their representatives within Argentina’s right.

The problem of global tax avoidance
According to the State of Tax Justice 2020 report, the global loss of tax revenue globally due to tax avoidance by multinationals and rich individuals is $427 billion (USD). Of this lost revenue, $245 billion is a consequence of multinational companies shifting profits to subsidiaries in low tax havens to underreport their profits in the countries they are actually carrying out their business in. A further $182 billion in potential global tax revenue is lost as a consequence of wealthy individuals hiding undeclared assets and incomes offshore.

Much of the avoidance by multinational is aimed taking advantage of bilateral agreements to avoid “double taxation”, where governments have entered into agreements to avoid a single income stream being taxed twice - however with minimization arrangements the rich deliberately and artificially shift the income so that it appears it to have generated in the lower tax jurisdiction rather than where the actual work and income generation occurred.

While the reduction in tax revenue is unsurprisingly greatest in high-income nations $382.7 billion (2.5% of collected tax revenue), the actual impact on revenue on low-income nations is far higher $45 billion (5.8% of collected tax revenue). This disproportionate impact makes it essential that action in addressing tax minimization and avoidance is taken globally. In Latin America, according to the Tax Transparency in Latin America Report, lost revenue due to tax non-compliance was estimated at 6.1% of GDP in 2018.

Latin America also has a disproportionate level of wealth held offshore with an estimate of EUR 900 billion or 27% held offshore, compared to Asia (4%), Europe (11%) and the United States (4%).

Initial efforts at closing loopholes have occurred primarily in the global north, most particularly the EU and North America, however, there have also been important steps taken in countries of the global south, most notably South Africa and Argentina.

Argentina’s tax code changes
Argentina has had a transfer pricing system, which sets the methods and rules for pricing transactions between and within enterprises with the same ownership or control, within its tax code since 1998. Tax regulation was further updated in 2017 by the Mauricio Macri government, this was updated following the recommendations by the Organization of Economic Cooperation and Development and the G20 action plan on Base Erosion and Profit Shifting in response to the Panama Papers, however, these changes did not fully comply with the recommendations and the code was not seen as being sufficient to address the problem of tax minimization and reduction by either multinationals or rich individuals.

In 2020, the Argentine government, via the Federal Administration of Public Revenue (AFIP) brought in a range of new tax regulations aimed at both closing tax loopholes and creating greater transparency regarding the incomes of companies and individuals, particularly where international parties are involved. The most significant changes being contained within General Resolutions 4697, 4838, and 4879.

General Resolution 4697 creates a requirement for companies and individuals, other than trusts or foundations, to disclose ownership structures and income (including passive income) to AFIP. In addition, the resolution requires those companies and individuals encompassed by the code to disclose and report their tax arrangements.

General Resolution 4838 requires the disclosure of domestic and international tax plans of both individuals and corporations. This obligation is placed on both the “taxpayer” and “tax advisors”. The resolution includes the requirement to disclose information on assets and tax systems of an entity operating in a tax haven or other jurisdiction that would otherwise limit disclosure.

General Resolution 4879 requires the disclosure of ultimate beneficial ownership interests within trusts (which normally obscure precise ownership relationships).

Response of the ultra-rich
The changes to Argentina tax regulations have met with opposition and criticism from both accountants and sections of capital. Accountants, such as César Litvin, have raised concerns that the new regulations undermine their professional privacy as they are required to disclose their clients' tax systems which may or not be being used to minimize tax obligations within Argentina, describing the requirement to disclose client’s savings systems as a “violence” against professional confidentiality. The system does allow tax agents to claim professional confidentiality in reporting, however, the tax agents have complained that doing so will create the impression that the client has something to hide regarding their tax plans. While sections of capital have also that the minimum threshold for reporting is at the discretion of the AFIP and that disclosure of the information is required not just to AFIP but to other parties.

This has given rise to a number of legal challenges to the constitutionality of the resolutions, by accountants and tax lawyers, primarily on the basis that they argue that such changes to tax rules and reporting requirements should have required legislative changes rather than by a directive from the AFIP. However, these challenges which initially had some success in administrative courts have been rejected in a series of hearings since January.

Need for solidarity with Argentina and action by other states
While it is important that jurisdictions such as Argentina and South Africa take action to limit tax avoidance, and their efforts should be supported and applauded, it is also important to recognize that actions taken by individual state actors, particularly those with relatively smaller economies will not only be insufficient to challenge the problem of global avoidance, but it is also likely to result in significant divestment in these jurisdictions outside of investment in extractive industries. This is because capital, if given the opportunity, will seek to punish jurisdictions that tax them by investing and focusing investment on jurisdictions that are more “business-friendly”, with the exception of those industries where there are fewer options regarding the location of investment, as part of the global race to the bottom in terms of taxation as in other industries. For this reason, it is essential that other jurisdictions, particularly those in the global north not only seek to place serious limits on tax avoidance in their own jurisdictions but support efforts by the global south to extract taxes from multinational companies. An important phase in expanding this response will be the next round of the Punta del Este Declaration on Transparency, a Latin American multilateral initiative aimed at increased international tax cooperation, which Argentina is chairing in 2021, its next reporting meeting is in November.

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