On December 2, President Donald Trump announced Section 232 tariff exemptions previously granted to Argentina and Brazil would terminate “effective immediately.” In his December 2 tweet, President Trump criticized the two countries for “presiding over a massive devaluation of their currencies, which is not good for [U.S.] farmers.” The U.S. reached agreements with Brazil and Argentina in early 2018 that provided exemptions from the 25 percent tariffs on steel imports and 10 percent on aluminum imports to the United States.
The international tax policy landscape is in the process of some key changes that are important for Latin American businesses to monitor. In particular, businesses should pay attention to two key developments.
First, the Organization for Economic Cooperation and Development (OECD) is asking for input on a global minimum tax proposal, a key part of the organization’s effort to rewrite international tax rules by the end of 2020. On Nov. 8, 2019, the OECD asked for comments on the latest version of its minimum tax proposal, which would create a set of rules aimed at ensuring that companies pay a minimum rate even if they are operating in low-tax jurisdictions back home. For years, the OECD has sought to address concerns that multinational companies are not paying their fair share of taxes in some countries where they have a significant number of users. The OECD is trying to find agreement among over 130 countries on its global minimum tax, which is likely to change shape over the next several months.
Second, the U.S. Congress is considering tax legislation that could have an impact on multinational businesses. Congress is considering attaching extensions for dozens of expired tax incentives, among other provisions, to government spending legislation that must pass by November 21, which is when U.S. government funding lapses (and the government could shut down until a deal is reached). As relevant to multinational corporations, Capitol Hill tax-writers are considering fixing an error in the Tax Cuts and Jobs Act (TCJA) that has caused multinationals and private equity firms to report and pay taxes on some previously exempted overseas investments.
Any potential fixes to the U.S. tax code are linked to the government funding legislation, so it will be important to watch how those negotiations unfold during the remainder of the year. The bigger picture here.
As a response to the increased violence of organized crime, Mexico passed its first forfeiture law in 2008. At the time, the law was seen as an agile tool for federal and state governments to reach the financial assets of drug cartels and organized crime within the limits of existing constitutional protections. In practice, however, the forfeiture procedure was slow and Mexican authorities were often unsuccessful in their efforts to secure the assets and proceeds of organized crime.
Following a political campaign focused on combating political impunity, corruption and organized crime, in March of 2019, the Morena Administration passed Constitutional amendments to articles 22 and 73, reducing certain constitutional restrictions. Congress then subsequently passed the National Asset Forfeiture Law (Ley de Extincion de Dominio) in August. This month, the Federal Attorney General created a Special Forfeiture Unit within the Fiscalia General de la Republica (Mexican equivalent of the Department of Justice) to investigate forfeitable assets and exercise the Federal Government’s rights under the law. The law was influenced by the laws and practices of the U.S., Guatemala, Colombia and Italy.
In September, Washington, DC welcomed a business delegation from the Dominican Republic (DR), as part of the annual Dominican Week (“SemDomUSA2019”). The trip allows for the dynamic Dominican private sector and Washington to exchange ideas toward strengthening economic ties between the United States and the Dominican Republic (DR).
Squire Patton Boggs hosted the distinguished delegation for a panel discussion titled, “Adapting to Global Supply Chain Disruption.” Participating panelists were former Congressman Joe Crowley, who currently serves as aSPB Senior Policy Advisor; Jerry Cook, Vice President, Government and Trade Relations of Hanesbrands; Leila Aridi Afas, Director of International Public Policy forToyota Motor North America, Inc.; Frank Samolis, SPB Partner and International Trade Practice Co-Chair; and Alex Pena-Prieto, SPB Santo Domingo Office Managing Partner and Latin America Practice Chairman.
It is no secret that U.S. correspondent banking relationships are indispensable to global commerce. Indeed, access to the U.S. financial system through correspondent banking is integral to foreign banks and to their customers, who often depend on the U.S. dollar as the anchor currency for their deals. At the same time, U.S. banks are under intense pressure (more than ever before) by regulators and law enforcement to quickly detect and report suspicious activity, and ensure that they are not conduits for illicit funds originating in foreign jurisdictions, and passing through correspondent accounts held for foreign banks.
To that end, in what is certainly not a new phenomenon, U.S. banks are keeping a close watch over their correspondent banking relationships, and quickly moving to exit relationships at the hint of impropriety. Moreover, it is well documented that some U.S. banks are “de-risking” not because of a specific event but because of the overall financial crime risk a foreign-located bank might pose. U.S. banks in some instances may not be interested in managing that risk, and would rather avoid the risk altogether by exiting the relationship. This process led some U.S. banks to terminate correspondent relationships with Latin and South American banks. While there has been significant discussion around the negative impacts of de-risking by U.S. government officials, it is still prevalent.
When it comes to trade, President Donald Trump and U.S. Trade Representative Robert Lighthizer are not scared to chart an uncommon path. The Trump Administration’s use of Section 301 of the Trade Act of 1974 demonstrates this fact.
Section 301 is a tool that grants the president the authority to impose tariffs and/or other trade-related remedies on countries whose trade practices (1) violate, or are inconsistent with, the provisions of, or otherwise deny benefits to the United States under, any trade agreement, or (2) are unjustifiable and burden or restrict United States commerce. While Section 301 laid mostly dormant for almost two decades, President Trump utilized the authority to initiate high-profile trade actions against China’s intellectual property (“IP”) practices his high-profile trade actions against China’s intellectual property (“IP”) practices (which has resulted in 25 percent tariffs on approximately $250 billion worth of Chinese products); he is using the statute to take action against India again to potentially take action against France for its digital services tax; and he is reportedly considering using the authority to take action against India.
On June 6, Squire Patton Boggs’ Miami office hosted the Brazil-Florida Business Council and its members for a discussion titled “Brazil Mid-Year Outlook: The Bolsonaro Administration Scorecard.”
The program featured two prominent speakers, Paulo Leme, former CEO and Chairman of Goldman Sachs Brazil and Professor of Finance at the University of Miami Business School, and John Price, Managing Director of Americas Market Intelligence and Professor at Florida International University. Dr. Susan K. Purcell, the former Director of the Center for Hemisphere Policy, University of Miami, moderated the discussion. The program discussed Brazil’s enormous upside potential and the challenges President Jair Bolsonaro faces in his efforts to improve Brazil’s economy. The program also explored the mechanisms by which Mr. Bolsonaro could put into effect his plan to implement promised budget-tightening reforms and help expand the private sector. Mr. Bolsonaro was elected President of Brazil last October with 55.1% of the total votes. No stranger to government, he served as a Federal Deputy for Rio de Janeiro for 27 years. He is known for his strong support of liberal and pro-market economic policies and conservative social policies.
Last month Squire Patton Boggs Moscow Office Managing Partner Sergey Treshchev spoke at the 25th Annual IBA Global Insolvency and Restructuring Conference in São Paulo, Brazil. Sergey, who is also Co-Chair of the Legislation and Policy Subcommittee, IBA Insolvency Section, was a participant in the roundtable discussion on ‘The Impact of technology on insolvency: cryptocurrency and blockchain’.
On May 30, United States President Donald Trump announced plans to impose new tariffs on all products imported from Mexico to the United States. Such an act would significantly impact binational trade and especially those sectors that have integrated supply chains, such as the automotive, agriculture, clothing, alcohol, electronic devices, and oil and gas industries.
On Friday, May 17, 2019, the United States opted to reduce trade tensions with its immediate neighbors – Mexico and Canada – by eliminating Section 232 tariffs on steel and aluminum on imports from those countries, helping to pave the road for congressional approval of the U.S.-Mexico-Canada (USMCA) Agreement. While global trade tensions remain, for the time being President Trump has also postponed the imposition of tariffs on automobiles from Europe and Japan. At the same time as this truce with the North American neighbors, President Trump is seeking to toughen measures on China, which has been accused of unfair trade practices and flooding global markets with subsidized steel and aluminum products.