Latin American Tax Treaties: A Regional Overview
Latin American countries originally had territorial tax systems, which were gradually replaced by worldwide tax systems under which a credit is allowed for taxes paid to a foreign country.
I have identified six stages in the development of treaties in Latin American countries:
Stage 1: Predominance of Sweden
The first treaty signed by Latin American countries dates back to the 1960s, when some countries of South America adopted a policy of promotion of foreign investment. The first country to sign a treaty with Latin America was Sweden, which signed with Argentina (1962), Brazil (1965), and Peru (1966). Argentina also signed a treaty with Germany in 1966, which Argentina terminated in 1972, and in 1967 Brazil signed treaties with Japan, Norway, and the United States. Except for the treaty with Peru, all agreements had a tax-sparing provision.
Between 1965 and 1980, Brazil signed tax treaties with countries in Western Europe, the United States, and Japan. In an isolated action, the Dominican Republic signed a treaty with Canada in 1976. All those agreements approximately followed the OECD model and, except for the one with Portugal, included a tax-sparing provision. That was also the case with the Canada-Dominican Republic treaty.
In a period with hard-to-define limits covering the second half of the 1970s and all of the 1980s, Brazil continued its campaign of treaty signing. Argentina, Ecuador, and Uruguay also signed treaties during short periods, generally with Western European countries. Argentina signed six treaties between 1978 and 1981, Ecuador signed four treaties between 1982 and 1984, and Uruguay signed three treaties in 1987, 1988, and 1991.
By the late 1980s and early 1990s, several Latin American countries decided to open their economies to foreign investment, which was paralleled by a process of signing tax treaties. That happened in Mexico, Venezuela, Ecuador, Bolivia, and Argentina, which started a campaign to sign treaties in 1991-1992. Chile began its negotiations in 1993 and began to sign tax agreements in 1998. Those treaties followed the OECD or U.N. model. The Andean Pact model was abandoned, even for treaties between Latin American countries.
Even after the disappearance of the tax-sparing provisions, the campaign to sign tax agreements remained active until the end of the century.
In the 2000s, Mexico, Venezuela, and Chile continued their campaigns to sign tax treaties; Cuba, Peru, Colombia, and Paraguay joined the region's treaty network; and Brazil went back to signing treaties. The tax agreements signed in this period follow the OECD or U.N. model.
By the end of the 20th century, the OECD had issued a report warning against the damage that tax havens could cause to member countries' tax revenues. Two years later, it issued a report identifying Panama as a tax haven. After several years of research, the OECD established some guidelines for defining a tax haven based on exchange of information criteria.
Several countries have signed treaties with Latin American countries.
The first tax treaty between countries of the region, Decision 40 of the Andean Pact, was a multilateral one. Decision 40 included not only a tax agreement between the Andean Pact members, but also the Andean Pact model treaty for its members to use in negotiations with other countries. Bolivia and Chile used that model to sign treaties with Argentina in 1976.
For tax agreements with countries outside the region, several Latin American countries followed a pattern similar to the one within the region: They signed treaties with Western European countries first and then with countries of other regions. That is because until the end of the 20th century, Western European countries were the only ones willing to sign tax treaties that included concessions such as the tax-sparing provision.
Double taxation agreements first appeared in Latin America half a century ago, but most of them have been signed in the last 25 years. From the beginning, Latin America has considered tax treaties as positive because they promote foreign investment, and as negative because they restrict the source country's power to tax foreign investors. It is reasonable to think the negative aspect was a cause of the positive one.
Sweden (1965 and 1975), Norway (1967 and 1980), Portugal (1971), France (1971), Belgium (1972), Finland (1972), Denmark (1974), Spain (1974), Austria (1975), Germany (1975), Italy (1978), and Luxembourg (1978).