VZCZCXYZ0002
RR RUEHWEB

DE RUEHMN #0187/01 0961618
ZNR UUUUU ZZH
R 061618Z APR 09
FM AMEMBASSY MONTEVIDEO
TO RUEHC/SECSTATE WASHDC 8925
INFO RUCNMER/MERCOSUR COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RHEHNSC/NSC WASHDC

UNCLAS MONTEVIDEO 000187 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: EFIN ECON UY
SUBJECT: URUGUAY ENDORSES OECD STANDARDS ON TRANSPARENCY AND 
EXCHANGE OF INFORMATION 
 
¶1. (U) This telegram is sensitive but unclassified, and not for 
Internet distribution. 
 
Summary 
------- 
 
¶2. (U) Uruguay formally endorsed the Organization for Economic 
Cooperation and Development's (OECD) standards on transparency and 
exchange of information in immediate response to its placement on 
the organization's April 2 list of non-cooperative tax havens, and 
OECD Secretary General Angel Gurria welcomed the move.  The subject 
of the OECD report touched on two issues that have been in the local 
news in recent weeks: a debate on banking secrecy between the two 
principal Frente Amplio presidential candidates, and Uruguay4s 
reputation as a tax haven, a characterization that President Vazquez 
rejected at the Summit of Progressive Leaders in Chile March 27. 
End Summary. 
 
Uruguay's short stay in the OECD's doghouse 
------------------------------------------- 
 
¶3. (U) Following the G-20 meeting, on April 2 the OECD released a 
report on the progress of 84 countries towards "implementing an 
internationally agreed standard on exchange of information for tax 
purposes."  The report placed countries in four categories, and 
Uruguay was one of only four countries -- along with Costa Rica, 
Malaysia, and the Philippines -- that fell in the lowest category: 
jurisdictions that haven4t committed to implement the 
internationally agreed tax standard.  In response, Minister of 
Economy Alvaro Garcia wrote immediately to OECD Secretary General 
Gurria to inform him that Uruguay endorsed OECD standards on 
transparency and exchange of information, as set out in the 2005 
version of Article 26 of the OECD Model Tax Convention.  Foreign 
Minister Gonzalo Fernandez ventured a public defense, saying that 
Uruguay "never was, is or will be a tax haven" and underlined that 
this is the only known case of a country "listed and de-listed in 
less than 48 hours."  OECD Secretary General Gurria welcomed 
Garcia's letter, saying "I am pleased that Uruguay joins a growing 
number of nations willing to cooperate in fighting tax evasion and 
other tax abuses." 
 
¶4. (U) The GOU promised the OECD that it would share tax information 
with countries with which it has signed investment protection and 
promotion agreements, and that it will seek to sign such agreements 
with all OECD members.  Agreements already signed with Portugal, 
Chile, Spain, India, China, Germany and Hungary (among others) 
include OECD norms. 
 
¶5. (U) The Uruguayan press was quick to accuse Argentina of 
pressuring the OECD to low-rank Uruguay.  The press quoted former 
Ministers of Economy Ignacio de Posadas (National party) and Danilo 
Astori (Frente Amplio and a current Presidential candidate) as 
saying that Argentina was attempting to provoke a crisis of 
confidence in the Uruguayan financial system.  Note: Argentina is 
not an OECD member and it does not have an investment agreement with 
Uruguay, raising doubts as to whether Uruguay will share tax 
information with its neighbor.  End Note. 
 
President rejects tax haven label 
--------------------------------- 
 
¶6. (U) The OECD listing touched on two issues that have been in the 
local press in recent weeks: a debate over Uruguay's bank secrecy 
provisions and the broader question of whether Uruguay is a tax 
haven.  During the Summit of Progressive Leaders held in Chile in 
late March, President Vazquez publicly rejected what he 
characterized as "rumors" suggesting Uruguay is a tax haven. 
Vazquez said Uruguay has been a serious and respectable country 
throughout history, and stressed that his administration has 
declared an open war against drug trafficking and related activity. 
Specifically, Vazquez added that "Uruguay is fighting against 
organized crime and money laundering and terrorism financing as 
never before.  We have sent bills and passed laws to work in that 
direction; we have created specialized courts and will train 
prosecutors to work on these issues.  We have prohibited the 
creation of new off-shore investment companies, and starting January 
1, 2010 will eliminate them." 
 
¶7. (U) Similarly, the director of Uruguay's tax agency declared 
April 2 that Uruguay cannot be catalogued as a tax haven since it 
does not fulfill three of the OECD4s four relevant criteria.  Nelson 
Hernandez stated that Uruguay taxes non-residents, has a transparent 
fiscal system, and does not grant tax benefits to firms that do not 
operate locally.  With respect to the fourth criterion -- the lack 
of exchange of tax information with other administrations -- 
Hernandez stated that the OECD requires information exchange clauses 
in bilateral agreements and said that Uruguay4s mistake has been to 
have failed to move forward on double taxation agreements. 
 
The debate over bank secrecy 
---------------------------- 
 
¶8. (U) Bank secrecy has been a subject of recent debate between the 
two front runners for the Frente Amplio4s presidential candidacy, 
senators (and former ministers) Danilo Astori and Jose Mujica.  The 
debate was triggered by Mujica4s call to eliminate banking secrecy, 
a proposal that Astori rejected.  The debate turned so hot that on 
April 2 Central Bank President Mario Bergara called a press 
conference to brief reporters on Uruguay4s regime and address 
questions.  During the conference, Bergara noted that all serious 
countries have some extent of banking secrecy, highlighted that 
Uruguay had gradually lightened its bank secrecy since 1982, and 
underscored that the current regime stems from a comprehensive 
political consensus reached during the discussion of the 2007 tax 
reform.  He stressed the Uruguayan judiciary's ability to lift 
secrecy on deposits in cases of documented suspicion of money 
laundering/terrorism finance, fraud, or tax evasion.  Bergara also 
underscored that bank secrecy can also be lifted by the Central 
Bank4s supervisory and financial units, and he noted that the bank 
has information exchange agreements in place with Brazil, the United 
States and Spain. 
 
Comment 
------- 
 
¶9. (SBU) We welcome Uruguay's quick response to the OECD, which 
demonstrates the country's desire and willingness to be a serious 
and responsible member of the international financial community. 
The GOU's timely promise to adhere to OECD guidelines was also 
undoubtedly due in part to a belief that inclusion on the OECD list 
would put large foreign investments at risk.  For example, the local 
press reported that Uruguayan officials reached out to Portuguese 
company Portucel, which plans to construct a USD 2-4 billion paper 
pulp mill, to explain why they felt Uruguay's inclusion on the list 
was a mistake.  End Comment. 
 
SCHANDLBAUER