<p>Tax Insights from International Tax Services www.pwc.com Uruguay approves significant new tax provisions to enhance transparency April 6, 2017 In brief The Uruguayan Congress recently passed Law 19,484 (Tax Transparency Law), which includes provisions designed to meet international standards on tax transparency. The law includes rules to discourage structures or transactions that involve low-or-no-tax jurisdictions (LNTJs). Most of these measures took effect on January 1, 2017, and may significantly affect individuals and companies operating in Uruguay with or through LNTJs. The measures include new substantive criteria for defining LNTJs and a new list of LNTJs. This Tax Insight addresses the new law’s most important provisions that will have local and international impact. In detail Required annual submission of information to the Tax Office Resident financial entities and branches of non-resident financial entities located in Uruguay must annually submit to the Tax Office (DGI) specific information regarding accounts held by residents and non-resident individuals and legal entities. The required information includes account balances at calendar year-end, as well as annual average balances and related income. Financial entities also must disclose income generated in connection with financial assets in custody or with investments on behalf of third parties. Laws related to bank secrecy, protection of personal data laws, and other provisions creating a duty of secrecy, reservation, or confidentiality do not apply for purposes of complying with this new law. Identification of ultimate beneficiaries and registered (nominative) title holders Resident and non-resident entities must identify and report the ultimate beneficiaries and their respective percentage of participation to the Central Bank of Uruguay, as well as disclose their chain of legal ownership. In addition, entities with registered shares or quotas must submit certain information relating to their shareholders via an affidavit which must include the percentage of the shareholders’ participation in the entity’s capital, and any subsequent adjustments to their ownership percentage. Entities whose securities of which are listed on national stock exchanges or on recognized international stock exchanges — or which Tax Insights 2 pwc are made available under other types of public offering — are not required to disclose their ultimate beneficial owners. Entities that are covered by these new disclosure requirements are not permitted to distribute dividends or other remittances of profits, effect capital redemptions, or pay liquidation proceeds to beneficiaries with respect to whom the identification requirements have not been satisfied. Distributions violating this new rule may subject the entity to a fine of up to the improperly distributed amount. New rules affecting LNTJs The regulations promulgated under the new law define LNTJs as those that meet the following conditions:  Income that is derived from activities performed, assets located, or rights economically used in Uruguay and that is taxed at an effective rate lower than 12%, and  No effective exchange of information agreement exists. Information can be exchanged under a tax information exchange agreement (TIEA), a double tax treaty (DTT) with a broad exchange of information clause, or the Multilateral Convention of Mutual Assistance between Tax Administrations. In view of this definition, on March 14, 2017, the Tax Office released a new blacklist which includes 73 LNTJs for Uruguayan tax purposes. In order to be removed from the list, a jurisdiction must conclude a DTT or a TIEA with Uruguay, and the Uruguayan Ministry of Finance must activate the bilateral automatic exchange of information regarding financial accounts. Of significant note, a new category of transactions is now subject to the corporate income tax (IRAE), the non- resident income tax (IRNR), and the individual income tax on residents (IRPF). Under this new provision, income derived from the transfer of shares of an entity located in an LNTJ that, directly or indirectly, owns assets located in Uruguay exceeding 50% of its total assets is deemed to be Uruguayan sourced and, therefore, subject to tax in Uruguay. Such indirect transfers of Uruguay shares or assets were previously not subject to Uruguayan tax. Additionally, the IRNR rate applicable to income obtained by entities located in LNTJs has generally increased to 25% (with the exception of dividends and profits paid by IRAE taxpayers, which will remain subject to the 7% IRNR withholding rate). The scope of Uruguayan-source income has been expanded for IRNR purposes to certain income obtained by LNTJ entities as a result of transactions with IRAE taxpayers, including income derived from imports of goods, and from the sale of goods abroad when the goods had previously been exported by IRAE taxpayers (i.e., triangular export/trading structures). Similarly, and even absent a relationship between the parties, income obtained by LNTJ parties from the sale of intangible assets that are economically used in Uruguay, and from the sale of real estate located in Uruguay, also will be deemed to be Uruguayan-source and subject to penalty at rates up to 30.25%. To encourage the transition to transparency, Uruguay has granted a temporary IRNR exemption for capital gains from Uruguayan sources recognized by LNTJ entities if the following conditions are met:  the transfer is completed on or before June 30, 2017,  the acquirer is not an LNTJ entity, and  if the LNTJ entity is registered with the Tax Office, it has started its closing procedures before July 31, 2017. Uruguay has also granted a temporary real estate transfer tax exemption with respect to the transfer of real estate located in Uruguay if the above mentioned conditions are met. Finally, the net wealth tax rate has increased to 3% for assets held by LNTJ entities in Uruguay. Incorporation of BEPS-compliant rules into transfer pricing regime In addition to the current local file obligation, following the scope of information to be provided under BEPS Action 13, Uruguayan taxpayers (including head offices and permanent establishments) that form part of a large multinational group (group of large economic dimension) and meet the definition of a related party must annually file master file and country- by-country reports with the Uruguayan tax authorities. The new law, which is consistent with BEPS Action 14, also allows taxpayers to request bilateral and multilateral Advanced Pricing Agreements (APAs) to provide certainty in relation to the taxation of intercompany transactions involving multinational groups. The takeaway Domestic and multinational enterprises and individuals operating in Uruguay should consider the impact of these recent tax provisions and review their structures with LNTJ entities. Tax Insights 3 pwc © 2017 PricewaterhouseCoopers LLP, a Delaware limited liability partnership. All rights reserved. PwC refers to the United States member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. SOLICITATION This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. At PwC, our purpose is to build trust in society and solve important problems. PwC is a network of firms in 157 countries with more than 208,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at www.pwc.com/US. Let’s talk For a deeper discussion of how this might affect your business, please contact: International Tax Services, United States John A. Salerno +1 (203) 539-5733 john.a.salerno@pwc.com María Bel +1 (646) 471-1268 maria.j.bel@pwc.com Jose Leiman +1 (305) 381-7616 jose.leiman@pwc.com Lucia Echenique +1 (646) 471-6294 lucia.echenique.fossati@pwc.com Diego Tognazzolo +1 (646) 471-2204 diego.g.tognazzolo@pwc.com Camila Silva +1 (646) 471-8794 camila.silva.jimenez@pwc.com International Tax Services, Uruguay Daniel García +598 2916 0463 garcia.daniel@uy.pwc.com Eduardo Rodríguez +598 2916 0463 eduardo.h.rodriguez@uy.pwc.com Eliana Sartori +598 2916 0463 eliana.sartori@uy.pwc.com Stay current and connected. Our timely news insights, periodicals, thought leadership, and webcasts help you anticipate and adapt in today's evolving business environment. Subscribe or manage your subscriptions at: pwc.com/us/subscriptions </p>