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Tax risks in Latam resemble the dangers of the Amazon rainforest


Visiting the Amazon rainforest may not necessarily involve an encounter with a dangerous predator such as a jaguar, anaconda, or caiman.

Visiting the Amazon rainforest may not necessarily involve an encounter with a dangerous predator such as a jaguar, anaconda, or caiman. However, the same cannot be said of the region's tax authorities, which are increasingly preying on taxpayers.

While the Amazon shrinks because of deforestation, tax is expanding. Transfer pricing and the taxation of software and the digital economy are key areas where new rules are being introduced.

Elections in a number of countries over the past two years have also resulted in systemic changes and the political direction of taxation.

One notable area is transfer pricing. In Brazil, the country's "crumbling TP framework" is being transformed from a unilateral system to one that aligns with international standards, as President Jair Bolsonaro prepares to make the country an OECD member.

However, that doesn't mean controversy will reduce.

Chile, for example, is ramping up its scrutiny of domestic inter-company TP policies. The legislative developments that are giving more power to the tax authority to probe transactions means that the focus on TP will only continue to increase.

Similarly, in Mexico, problems are emerging from the 2018 TP rules. Taxpayers are torn between legal compliance and the company's global operations.

In Central America, meanwhile, scrutiny of TP practices and document requirements grow.

The problems extend to software and digital taxes too.

Mexico's tough approach to 'standardised software', moving ahead of the OECD's position, leaves a lot of room for uncertainty. In Colombia, meanwhile, there is simmering controversy over the tax authority's approach to withholding tax in relation to software licensing. In Brazil, the problems are multiplied because rules across municipalities, states and the federal authorities are not standardised.

As in the Amazon, where nature is at its rawest, some of the tax laws in the countries it winds through are quite brutal in places too.

If taxpayers fail to prepare for the modernisation of the region's tax rules, the tax authorities will most certainly bite as effectively as any of the Amazon's varied and lethal predators.

We hope you enjoy this year's edition of the Latin America Supplement.

Anjana Haines

Managing editor

International Tax Review

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