With Amnesties in Rear-View Mirror, Wealth Planning Assumes More Prominent Role

Business is brisk for international tax attorneys and wealth advisors following tax amnesties in several Latin American countries, as clients seek to restructure holdings to be more tax efficient — with clear benefits for cross-border mutual funds. With the exception of Mexico, the amnesties that swept through the region in 2016 and 2017 didn’t require investors to repatriate assets from abroad. They simply had to declare them. Funds are attractive for tax purposes because in some jurisdictions they allow for tax deferral until cashed out.

“After the amnesties, we’re seeing clients more and more concerned about the types of investments they are making from a tax perspective,” said Horacio Woycik, head of the Montevideo office for international law firm Harneys, which helps financial institutions and families set up funds and trusts that address succession-planning, confidentiality concerns and, increasingly, tax savings.

Nowadays many families are opting to set up their own funds rather than trusts, Woycik said, or turning to established funds for the tax benefits.

In the case of Argentina, investors have been buying local bonds with yields close to 30% that are exempt from capital gains taxes. Funds have also been set up there to mirror local equities, with double-digit returns.

“All those investors that weren’t used to seeing the tax implications of their investments are now coming to realize how important tax planning for investing is, both in the decision of structuring and using a vehicle to hold those investments,” said Woycik.

Mauricio Dario Frumento, a private banker in Buenos Aires with Industrial and Commercial Bank of China who advises 80 clients on USD 160 million in investments, said the new tax parameters require bankers to specialize in tax and legal matters. “Clients have become a lot more sophisticated,” he said.

The Mexican amnesty in 2017 yielded USD 20 billion in disclosed assets while Argentina’s efforts saw USD 117 billion declared and Brazil’s 2016 amnesty uncovered USD 50 billion in offshore assets.

The disclosures were time-consuming for wealth advisors and clients alike. But now the money is getting put back to work, both in local and offshore investments.

“People were kind of sitting on their hands, holding on to what they had and maybe liquidating a lot of the mutual fund investments that they had to pay for the tax bills to repatriate or at least declare their assets,” recalled Fred Bates, managing director with Becon Investment Management in Buenos Aires. “A lot of that has kind of gotten past us in countries like Argentina, Brazil and Chile.”

Latin Americans often keep their investment accounts in the US as a way to hedge against economic and political uncertainty in their home region. So while the tax jurisdiction has changed for some assets, many wealthy Latin Americans continue to invest and hold assets abroad.

“Miami felt some heat and pressure from the repatriations, but everything got back to normal in 2017,” said Darren Luckfield, regional manager for wholesaling offshore funds with AllianceBernstein in Miami. Last year was a record year for sales at AllianceBernstein, he added.

Luckfield estimates that perhaps 5% or 10% of assets, at most, left Miami due to the repatriations. The repatriation efforts were a huge distraction from day-to-day business in 2016 and during part of 2017, as advisors scrambled for account statements and other documents to help their clients comply.

“Clients still believe the United States is safe, a much preferred investment domicile for them versus Latin America,” said Leandro Barbuscio, a tax principal with Kaufman Rossin in Miami who specializes in international tax planning and structuring for foreign clients with an interest in US real estate.

Some Kaufman clients have been reluctant to declare assets abroad because they argue there’s too much corruption in their home countries, or they don’t believe the money will be put to good use.

“Taxpayers will comply once they feel more confident in the tax system,” said Barbuscio.

Meanwhile, the last two years have brought an increase in business as Brazilians continue to move to Miami or invest in the Miami area, according to Claudia Low, an attorney at Kaufman Rossin who is internationally recognized as an expert in the field of Brazilian taxation.