Double Taxation Agreements in Latin America. Analysis of the links among taxes, trade and responsible finance.

ESTEBAN SERRANI

Fundacion SES

Lugar: CABA; Año: 2014 p. 182

978-987-29850-0-4

INTRODUCTION TO THE PROBLEM In the past decades, Latin American countries have lived through huge economic fluctuations and critical moments that have recurrently brought about dramatic social costs. The most remarkable feature has been the increase in unemployment, inequality and poverty levels, to the point of being known as the region with the most regressive distribution of income, even when it is not the poorest in the world. Overall, societies recognize the progressive or regressive role of government spending in relation to their investment priorities, and focus their debate on the Governments ability for economic intervention. In any case, differences are usually not that clear when the debate hinges on fiscal policy. Broadly speaking, there is a clear ideological and political divide among countries and economic policies with reference to the fiscal issue. On the one hand, some countries support the concept of a Minimum State, where the tax burden should not inhibit persons who, having resources/ capital, are motivated to invest. On the other hand, some support the idea of an Active State, with a public sector that plays a promoting, ordering and redistributing role, and where the tax burden is placed on those with the highest ability to pay taxes. It is remarkable that with governments of different political ideologies in most Latin American countries?including the ones considered in this study tax structures in recent decades have increasingly been based on indirect taxes (value added tax, sales tax, turnover tax), which are more easily collected but more regressive, given their higher relative weight for the medium- and low-income sectors. In a similar trend all over the world, there has been a reduction in the tax burden and its relative weight in the collection of direct taxes (income tax or property tax), which are known to have a positive effect on the redistribution of income under the principle that those who have more pay more. It has been recognized that in recent years the most progressive Latin American governments have placed the emphasis on resizing government spending and improving tax collection, rather than on introducing structural changes into the fiscal architecture. This implies a structural imbalance in government accounts, with a perverse parallel phenomenon that prevents a fairer distribution of tax burdens and the overcoming of historical constraints for the government to establish more equitable links among economic development, foreign investment, taxes, trade and responsible finance. The persistence of fiscal privileges, exemptions and legal loopholes is combined with an important degree of evasion and avoidance. The internationalization of the global economy and the advance in technology has significantly facilitated the flow of goods and services as well as economic (financial and business) transactions. Therefore, the new conditions also pose limits and challenges from the point of view of taxes and oversight: What attitude should Latin American governments adopt with regard to foreign capital? What jurisdiction should prevail for the collection of taxes from companies with international operations? How can the government prevent the measures adopted to avoid double taxation that is, taxes being simultaneously collected on the same economic asset in different countriesfrom leading to double non-taxation? Given the purpose and the context for the development of Double Taxation Agreements (DTAs) in different Latin American countries, such agreements represent an important threat to sustaining financing for development and social infrastructures over time. And this is due, in many cases, to the inequitable distribution of revenues, the (very often) insufficient technical support of the fiscal administration to ensure the effective enforcement of the agreed-upon provisions, and the possible association of DTAs with some grey areas related with capital accumulation, such as tax havens and aggressive tax avoidance efforts by multinational corporations. The focus on productive efficiency and growth as a univocal road to further economic development has intended to downgrade and discredit the significance of public finance and national tax revenues for the financing of a sustainable and inclusive development model. Thus, they have justified the reduction of capital gains taxes as well as the transfer of the tax burden to domestic consumption. This has led to a more regressive fiscal policy in the region?a factor that increases inequalities and inequities