Last week we looked at the hostile world of HNW families living in Russia, we now turn our attention to HNW families living in Argentina.
In 2001 Argentina defaulted on USD 82 billion sovereign debt, the largest-ever at the time. After that spectacle no one wanted to invest in Argentina. This resulted in restricted access to international credit markets. Furthermore, President Cristina Kirchner continued to default on its debts for a further 15 years. Then in December 2015 Mauricio Macri became President.
Macri immediately introduced market reforms to include settling payments with those creditors that previously had not agreed to exchange their defaulted debt for new securities, accepting a write-down. On top of that Macri removed currency controls and took a number of -yet not very sucessfull- measures to tamper the rampant inflation. Hence now Argentina is returning to be open for business.
In April 2016, Macri just four months later issued $16.5 billion in bonds in the largest emerging market debt deal on record. It was oversubscribed 3 times – Argentina was an attractive country in which to invest – it is recovering.
But all is not rosy in the Argentine garden.
According to the World Bank, the total tax on corporate profits (tax as a percentage over net realized profits) is 106% one of the highest in the world, as compared with Cyprus at only 24% one of the lowest. As any scholar of the Laffe curve (the higher the tax rate, the more inclined tax payers are to plan to avoid it) will expect, at this rate of tax asset protection and tax planning are foremost in the minds of Argentine residents, which is exactly what is the current state of affairs.
Although, traditionally not very sophisticated at planning using trusts, Argentines are increasingly turning to trust structures to protect their assets. There is no comprehensive trust tax regulation in Argentina, but it is clear from court cases and practice that (provided certain requirements are met) family trusts are not subject to tax in Argentina, both for the settlor and for the beneficiaries.
On 22nd July 2016 Macri still in strident mode, introduced a tax amnesty regime, such that if Argentines declared their taxable assets both onshore and offshore they would pay only a 10% penalty. As has been seen with other amnesties such as in Spain, the concern of the Argentines, is not the payment of tax, or the penalty of 10% for declaring the assets, but whether, if they declare their assets, at a later date, a future government will not demand more from them.
To trust or not to trust the Government is therefore the most hotly debated topic at the moment and the Argentines have only until the 31st March 2017 to decide what to do. To help make up the minds of wavering Argentines, the Argentine Government has made it very clear that anyone caught not declaring will be subject to very onerous measures; penalties and taxes.
A further difficulty for many is that even if they declared their assets and kept them offshore, what should they do if they wanted to use this money to invest in Argentina.The quandary is that even if all the monies are declared or in an offshore trust, they would prefer to invest back into Argentina anonymously again for fear that a future Government would come knocking on their door for more monies. There is much interest therefore in using an Argentine trust as an investment vehicle (the Fideicomiso), but then their preference is to have a professional regulated and established global trustee to act as trustee to ensure the safety of their assets and that all taxes are paid and that the Fideicomiso is fully compliant in Argentina.
What is even worse, is that most Argentines do not have the luxury of waiting until 31st March before deciding what to do, if they have monies offshore, they will need to do something before 31st December 2016, since after that day all assets held offshore in CRS compliant countries will be reported once the automatic exchange of information, under the Common Reporting Standard comes into force in September 2017.
GFOS has therefore been working on solutions for Argentines with Julian from a Family Office in Switzerland which achieves asset protection, privacy, control and succession planning on assets, using a tried and tested corporate and fiduciary structure, but if it is to be fully effective it will need to be in place before the end of the year.
If you would like to find out more write to svetlana@garnhamfos.com or call her on 020 3740 7423 to arrange with her an appointment to see Caroline.