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Latin America -- Open for Business

Posted on August 15, 2016 by Stuart Gibson


It's summer in the Northern Hemisphere and as is typical for August, many tax professionals in the U.S. and Europe are on holiday. The rest of us are watching the Olympics in Rio, where it is still winter

But the Olympics are just one reason to pay attention to what is happening in Brazil and the rest of Latin America. Home to the world's seventh largest economy, Brazil should also be the focus of businesses seeking new markets and tax professionals looking for new planning opportunities. This issue of Tax Notes International includes a series of pieces offering tax perspectives from and about Latin America.

With the OECD having established model transfer pricing rules, and its base erosion and profit-shifting project proposing major changes to those rules, it would be easy to assume that the OECD is the only game in town for transfer pricing. Not true. Mindy Herzfeld explains how Brazil developed its own set of rules for transfer pricing. While Brazil's transfer pricing rules are much simpler to apply and administer than the OECD's, they may ultimately cause multinationals to pay higher taxes in Brazil. She examines the arguments for and against the Brazilian system, which that country is promoting at the United Nations, and suggests there may be another approach that is compatible with both systems.

With the growth of online commerce, tax administrations are struggling with the challenge of how to tax digital services provided within their country. Some -- like Australia and the U.K. -- have imposed so-called Google taxes on goods and services provided online. Others, like Israel, propose to collect VAT on services offered to residents, even if the service providers have no permanent establishment in Israel. Ana Paula Maciel and Ernesto Levy examine the emerging policies concerning taxation of digital services in three Latin American countries -- Brazil, Argentina, and Colombia.

Much of what has been written about the BEPS project discusses its impact on the U.S., Europe, and Asia. Little attention, however, has been paid to what Latin America may look like after the BEPS action plan is fully implemented. Romero J.S. Tavares and Aline Dias discuss how, despite participating fully in the development of the BEPS action plan, Brazil missed a golden opportunity to influence the final result and reform its own outdated tax system. They also examine what a post-BEPS Latin America might look like, paying particular attention not only to Brazil and Argentina, but also to Chile, Colombia, Peru, Uruguay, Mexico, Costa Rica, and Panama.

Electricity use in Mexico is growing at a record pace, with the number of electricity users rising by 40 percent in the past nine years. To help meet growing demand and address climate change, Mexico has established a goal to produce one-quarter of all energy from renewable sources by the 2021. Carlos Perez-Chow Martinez discusses the tax incentives that Mexico has enacted to encourage production of green energy.

Panama, well known among the wealthy and powerful as a reliable haven for financial and tax secrecy, received a shock in April after a group of international journalists released millions of secret documents leaked from the Panamanian law firm Mossack Fonseca. The disclosure of the Panama Papers reverberated around the world and shone a harsh light on Panama. Bruce Zagaris looks at how Panama reacted to this existential threat to its legal and financial sector. The country's return to transparency was jeopardized recently when two prominent members of the commission appointed to examine the country's legal and financial systems resigned, after Panama refused to make the final report public.

Stuart Gibson is editor of Tax Notes International.