What was the most significant development in your region/jurisdiction's tax practice in the past 18 months?
There has been a confluence of events over the last year and a half that have contributed to a rapidly changing tax landscape in Latin America (LATAM). Several countries, including Argentina, Brazil, Colombia, Chile, Costa Rica, and Mexico, have witnessed tax reforms with differing objectives. While some of the reforms have resulted in a reduction of the corporate tax rates and simplification of the tax system with a view to promoting investment, others have taken a different approach, introducing new taxes or strengthening collection procedures on digital supplies of goods and/or services traded through digital platforms.
One unifying theme embraced by all the LATAM countries (and the general focus of our responses below) is the introduction of real-time or near real-time reporting requirements, which require businesses to provide much more detailed information–on a contemporaneous basis–to the tax authorities. This heightened transparency that comes with real-time reporting means that the tax authorities will have more access to (and insight into) a taxpayer's business operations and transactions and taxpayers will use the new compliance requirements as an impetus to harness new technologies to scale-up and better automate their systems and processes.
In addition, governments throughout LATAM are adopting OECD-driven recommendations in areas such as anti-base erosion measures and transfer pricing reporting. Measures relating to the first category include limits on the deduction of interest expense, limits on the deferral of taxation of CFC-related income in appropriate cases, and adoption of the expanded definition of a permanent establishment. Unfortunately, there is little coordination across LATAM governments in adopting BEPS-type measures, so taxpayers will need to have a cogent understanding of the landscape to ensure they are in compliance and able to manage any potential tax risk.
Further, the following "international" developments have had (or are expected to have) an impact on how investments in the LATAM region are structured and operate:
- Implementation of the OECD Multilateral Instrument;
- 2019 US tax reform;
- Potential direct and indirect tax reform in Brazil as part of its efforts to join the OECD (changes to Brazil's approach to transfer pricing are already being contemplated and certain OECD recommendations, such as country-by-country reporting, have been implemented); and
- New free trade agreement (USMCA) approved by Canada, Mexico and the US that replaces NAFTA and that will enter into force over the short term.
What was the most notable effect of that change?
Organizations are increasingly turning to digital technologies to automate their tax systems via consistent processes to comply with increased reporting and compliance obligations and to enable them to model their tax profiles, given the changing tax landscape. The diversity of legislation across Latin America, however, requires that new processes and technologies be customized for each jurisdiction to meet local requirements. The taxation of digital platforms, in particular, will change the landscape of digitized services and create potential double taxation issues.
Where is the market moving in this practice area?
These market conditions demand that we deliver timely and technology-aligned tax advice to help clients more efficiently and effectively comply with information and reporting requirements through increased visibility and controls. We also bring value to clients by helping them extract more data through automation and by performing data analytics and modelling for better access to information and deeper insights into the performance of their business and overall tax profile.
What kind of impact will this have on your work?
Our fundamental approach to client projects has not changed as a result of recent developments. We continue to offer our clients consistent and quality tax advice, helping them address both existing and emerging business challenges and tax issues with confidence. With the use of innovative technologies, we also realize the need in many instances to properly report, model and present our tax advice on a real-time basis.
Do you anticipate any significant legislative changes in the future with a material impact on tax in your region?
While the push for enhanced transparency and information disclosure are certain to continue, legislative changes are possible in certain jurisdictions due to upcoming elections coupled with regional political developments, which could drive major tax reform and/or the renegotiation of significant trade agreements such as the United States – Mexico – Canada free trade agreement (USMCA). Increased transparency could also mean more controls for cross-border transactions. In addition, new digital tax compliance rules could have impact processes such as electronic invoicing and digital accounting reports.
As noted above, OECD initiatives have had a considerable influence on international tax policy in the LATAM region, with countries adopting (or intending to adopt) various BEPS-related measures into their domestic tax legislation and signing onto the MLI. The tax treatment of digital businesses is another topic that is being discussed as part of the tax policy agendas throughout the region.
If these come into force, how will the industry look in the future?
Companies may need to consider changes to their supply chain, operating models, and legal entity structures in the event of future tax reform(s) or the renegotiation of trade agreements. In an environment where there is a push for centralization of real-time reporting and more detailed data requests, we envision that companies may need to model out the potential impacts of tax reform in certain jurisdictions quickly.
How would you describe the tax controversy landscape in your region/jurisdiction?
The tax controversy environment in the LATAM region is challenging in terms of escalating challenges by the tax authorities (and appeals to either non-tax specialized courts or tax specialized courts) and the duration of tax litigation. In some countries, such as Brazil and Mexico, it is not uncommon for court cases to last for five to 10 years. While negotiation processes are becoming more popular, some countries in the region do not allow this type of out-of-court settlement. International means of dispute resolution also are on the rise (if allowed by the relevant countries), either by way of a mutual agreement procedure or arbitration under a double taxation treaty. However, tax authorities acting as competent authorities for these purposes may not be fully prepared to navigate alternative means of dispute resolution. This environment is likely to be further complicated as the region's needs for additional tax collection is intensified.
Do you expect tax procedures in your region to move towards common standards or diverge in the future?
Many of the tax systems in the LATAM region share similarities (aside from Brazil), which can be explained by a historic modeling or adoption of Mexico's overall tax system structure. Considering that most countries in LATAM are paying attention to OECD efforts and often adopt OECD recommendations, it is likely that there will be common approaches to tax policy, especially in the areas of international taxation, transfer pricing, global reporting and exchange of information. However, tax policy agendas tend to change and adjustments are common when new governments are elected–depending on the circumstances, governments may adjust the tax framework to a more "business-friendly" environment or conversely move towards more aggressive taxation measures.
As noted above, a tax reform is anticipated in Brazil as part of its efforts to join the OECD.
Is the global drive towards regulation going to affect tax practice? If yes, in which areas?
With technology and digitalization rapidly gaining ground by both the tax authorities and taxpayers, the use of technology, artificial intelligence and automation has been our approach and will continue to be so. Since this is a venture that demands constant evolution, tax technology will continue to be an important element of our practice and a natural consequence of automation is that tax specialists will be enabled to be more focused on strategic decisions and advice, using data to drive analytics that lead to better answers.
What do you see as the direct impact of COVID-19 in your practice?
It is an understatement to say that the COVID-19 pandemic has presented extensive challenges to organizations worldwide. Our first priority is to safeguard our people, clients and communities, while at the same time we need to ensure the delivery of quality and timely services with minimal disruption. Strengthening digital capabilities as businesses have transitioned to remote working, adopting changes to supply chains and operating models, and engaging in crisis management are imperatives for many businesses, and once the crisis begins to ease, it will be necessary to shift focus to a recovery phase as clients begin to resume regular operations and quickly adjust to a "new normal."
This document has been prepared solely for the purpose of publishing in the 2020 Guide to the World's Leading Tax Advisers and may not be used for any other purpose. This document and its contents may not be reproduced, redistributed or passed on, directly or indirectly, to any other person in whole or in part without Deloitte's prior written consent.
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited ("DTTL"), its global network of member firms, and their related entities (collectively, the "Deloitte organization"). DTTL (also referred to as "Deloitte Global") and each of its member firms and related entities are legally separate and independent entities, which cannot obligate or bind each other in respect of third parties. DTTL and each DTTL member firm and related entity is liable only for its own acts and omissions, and not those of each other. DTTL does not provide services to clients. Please see www.deloitte.com/about to learn more.
This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited ("DTTL"), its global network of member firms or their related entities (collectively, the "Deloitte organization") is, by means of this communication, rendering professional advice or services. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser.
No representations, warranties or undertakings (express or implied) are given as to the accuracy or completeness of the information in this communication, and none of DTTL, its member firms, related entities, employees or agents shall be liable or responsible for any loss or damage whatsoever arising directly or indirectly in connection with any person relying on this communication. DTTL and each of its member firms, and their related entities, are legally separate and independent entities.
© 2020. For information, contact Deloitte Global.