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Cablegate: Argentine Tax Authority's Abad On Cristina Government, Tax

VZCZCXYZ0008
RR RUEHWEB

DE RUEHBU #2241/01 3241518
ZNR UUUUU ZZH
R 201518Z NOV 07
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 9743
INFO RUEADRO/HQ ICE DRO WASHINGTON DC
RUEAIAO/HQ ICE IAO WASHINGTON DC
RHMFIUU/DEPT OF HOMELAND SECURITY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/USDOC WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE USD FAS WASHINGTON DC
RUEHC/DEPT OF LABOR WASHINGTON DC
RHMFIUU/HQ USSOUTHCOM MIAMI FL
RUEHAC/AMEMBASSY ASUNCION 6697
RUEHCV/AMEMBASSY CARACAS 1596
RUEHMN/AMEMBASSY MONTEVIDEO 6906
RUEHSG/AMEMBASSY SANTIAGO 0915
RUEHBR/AMEMBASSY BRASILIA 6583
RUEHLP/AMEMBASSY LA PAZ NOV SAO PAULO 3588
RUEHRI/AMCONSUL RIO DE JANEIRO 2397

UNCLAS BUENOS AIRES 002241

SIPDIS

SIPDIS
SENSITIVE

TREASURY FOR LTRAN AND MMALLOY
TREASURY PASS IRS FOR BENEDETTA KISSEL, HENRY LOUIE
DHS/ICE FOR A/S JULIE MEYERS
DHS FOR A/S INTL AFFAIRS MARISA LINO
DHS FOR CHIEF OF STAFF CHAD SWEET
DHS/ICE FOR CARLOS MAZA AND GLORIA FICHOU
EB/IFD/OIA FOR WSCHOLZ
E FOR THOMAS PIERCE
PASS FED BOARD OF GOVERNORS FOR PATRICE ROBITAILLE
PASS USTR FOR DUCKWORTH
USDOC FOR 4322/ITA/MAC/OLAC/PEACHER
US SOUTHCOM FOR POLAD

E.O. 12958: N/A
TAGS: AR ETRD ECON KTFN
SUBJECT: ARGENTINE TAX AUTHORITY'S ABAD ON CRISTINA GOVERNMENT, TAX
INFORMATION EXCHANGE, CSI, AND 9/11 ACT

Ref: (A) Buenos Aires 1800
(B) Buenos Aires 1795

This cable contains sensitive information - not for internet
distribution.

-------
Summary
-------

1. (SBU) Alberto Abad, head of Argentina's customs and revenue
authority, AFIP, sees key economic challenges facing the incoming
Cristina Fernandez de Kirchner (CFK) administration as re-inserting
Argentina into global capital markets, dealing with inflation,
reducing the heavy burden of state subsidies on the budget, and
attracting needed foreign direct investment. Abad, himself mooted
as a leading CFK Economy Minister candidate, told the Ambassador
November 14 that he knows and respects incoming Economy Minister
Lousteau but is uncertain how much room to maneuver Lousteau will be
given in the new government by "de facto Economy Minister" Nestor
Kirchner. Abad expressed hope that CFK's more open international
engagement style could lead to resolution of the longstanding Paris
Club impasse.

2. (SBU) Abad expressed appreciation for the agreement by the
Embassy's Immigration and Customs Enforcement (ICE) unit to include
AFIP tax investigators alongside their customs colleagues in the
joint U.S./GoA Trade Transparency Unit. He sees this as a first
step on the path to establishing broader tax information exchange
cooperation. Noting the U.S. Treasury Department has conditioned
discussions of a formal U.S./GoA Tax Information Exchange Agreement
discussions on a commitment to negotiate a broader Bilateral Income
Tax Treaty, Abad argued that exchanging Argentine and U.S. tax data
now would further our joint priorities in combating money laundering
and terrorist finance. On the U.S. 9/11 Act, Abad had earlier
proposed creating a database of legitimate/trustworthy Argentine
exporters and sharing this information with DHS Customs and Border
Patrol to expedite entry of goods into the U.S. from Argentine
businesses. Ambassador outlined the U.S. Customs-Trade Partnership
Against Terrorism (C-TPAT) which has established similar programs
with Australia and New Zealand. ICE subsequently arranged a
briefing by visiting C-TPAT officials for Argentine Customs
authorities. Abad sees the U.S. IRS as a model to be emulated and
seeks a closer working relationship. Post recommends a Treasury/IRS
invitation for Abad to visit Washington as a deliverable for the
December 10 CFK inauguration.
End Summary.

-----------------------------------------
Abad on CFK Economy Minister Cabinet Pick
-----------------------------------------

3. (SBU) Before Cabinet Chief Fernandez's November 14 announcement
of CFK cabinet appointments, local media was calling AFIP's Alberto
Abad one of the top candidates to replace Miguel Peirano as Economy
Minister. In a November 15 meeting with Ambassador, he joked that
the "Peter Principle" (rising in a bureaucracy to one's level of
incompetence) applied in his case, and that after six years
improving the AFIP organization and building a culture of taxpayer
compliance for the first time in Argentina's history, he would be
more than content to move on when his term expires in December

2008.

4. (SBU) Abad praised the choice of Banco Provincia de Buenos Aires
President Martin Lousteau as Economy Minister, noting that. As an
ex-director of BAPRO (the Banco Provincia holding company), Abad
said he was familiar with Lousteau's work. It remains to be seen,
Abad said, just how much room to maneuver Lousteau will be given in
the new government. He repeated the conventional wisdom that,
whoever sits in the Ministry, Nestor Kirchner will remain the "de
facto Economy Minister." Abad expressed hope that CFK's more open
international engagement style could lead to resolution of the
longstanding Paris Club impasse. Key economic challenges facing the
incoming CFK administration, Abad concluded, are re-inserting
Argentina into global capital markets, dealing with inflation,
reducing the heavy burden of state subsidies on the budget, and
attracting needed foreign direct investment.

-----------------------
Growing Tax Collections
-----------------------

5. (SBU) Ambassador praised AFIP's strong track record in boosting
government revenue collection, noting a 30% increase in VAT
collections alone in the first half of 2007. Abad noted that
revenues should increase from a projected Pesos 200 billion in 2007
to the Pesos 230 billion (approx US$ 73 billion) level in 2008. He
called the bulk of GoA revenue growth due to economic expansion
(including dramatically increased employment), the capture of a
larger share of the inflation-boosted income in income taxes, and
the imposition of new taxes (including export taxes and a financial
transactions tax). He also attributed increased revenues to a
greater number of taxpayers filing their required returns and to
AFIP's enhanced collection efforts.

6. (SBU) Abad highlighted that recent increases in export tariffs on
soy, wheat and corn are expected to bring in an additional $1-plus
billion a year towards CFK's stated goal of achieving a 4% primary
fiscal surplus. Export tariffs offer the GoA three key benefits,
Abad said: they are a growing source of revenue (so long as
international commodity prices remain high); they help lower and
control politically sensitive domestic food prices; and they are not
shared by the federal government with the provinces. (Export
tariffs were not contemplated under the GoA's dated co-participation
law that sets federal/principal revenue sharing formulas.)
Ambassador noted the November 13 announcement of significantly
expanded export tariffs on both crude and refined hydrocarbons.
(The latter are not expected to raise significant additional GoA
revenue, but rather ensure that the bulk of domestic hydrocarbon
production is consumed locally at prices substantially below world
market levels.) How increased revenues will be used by the GoA is
out of AFIP's hands but the quality of GoA spending is a matter of
concern for all Argentines, Abad said. Transportation and energy
subsidies may have had some short term logic/utility, but they are
creating substantial medium term disequilibria. Increases in public
utility tariffs expected early in the CFK administration will be
"complicated," he concluded.

--------------------------------------------- --
TTU, Request to Expand Tax Information Exchange
--------------------------------------------- --

7. (SBU) Ambassador noted that, at their last meeting in September
(Reftels) he and Abad had discussed the idea of expanded
investigative cooperation with the joint U.S./GoA Tax Transparency
Unit (TTU). Given AFIP's strength in the area of monetary
instrument reporting, Ambassador said, the Department of Homeland
Security's Immigration and Customs Enforcement (ICE) unit welcomes
AFIP's proposal to include its tax investigators within the Buenos
Aires TTU operation. An AFIP investigative presence would enhance
the ability of U.S./Argentine investigators to monitor potential
illegal financial movements.

8. (SBU) Abad welcomed ICE's flexibility and saw this as a first
small step on the path to establishing broader tax information
exchange cooperation. Abad recalled that the U.S. Treasury
Department continues to condition a formal US/GoA Tax Information
Exchange Agreement (TIEA) on negotiation of a broader Bilateral
Income Tax Treaty, notwithstanding the fact that the U.S. in 2007
signed a TIEA with Argentina's Mercosur partner Brazil based only on
the promise of future tax treaty negotiations. Abad and his Chief
of Staff Ernesto Donato argued that the exchange of Argentine and
U.S. tax data needs to be viewed from a more "modern" perspective:
beyond serving the interests of both nations' tax authorities, the
exchange would further our joint priorities in combating money
laundering and terrorist finance. Argentina, they noted, is already
building its anti-evasion and anti-money laundering capacity through
the negotiation of cooperation and information exchange agreements
with a number of other national tax authorities, including those of
Brazil, China and Italy.

9. (SBU) Argentina also participates actively as an observer nation
in the OECD's tax forum, and the head of AFIP's revenue service,
Horacio Castagnola, will travel to South Africa in February to
attend an OECD conference that will address the $11+ billion of
taxable revenues being help in global offshore tax havens.
Argentina does have some limited contact with the U.S. IRS now
though Argentina's membership in the Inter-American Center for Tax
Administration (Centro Inter-Americano de Administracion Tributario)
which includes Latin nations and Canada, Spain, Italy, France,
Luxembourg South Africa and most recently India as members and
observers. But AFIP sees the U.S. IRS as a model to be emulated and
seeks a closer working relationship. The only solution to the
globalization of tax evasion, money laundering and terror finance,
Abad concluded, is increased exchange of information by tax and
revenue authorities. "Give us a signal," he concluded. "We don't
need to negotiate a big bilateral agreement, but we want to develop
a new, closer relationship with you."

---------------------------------------------
Container Security Initiative (CSI) Expansion
---------------------------------------------

10. (SBU) Ambassador noted ICE's satisfaction with the success of
the CSI program to date in Argentina and recalled Abad's request at
their September meeting (Ref B) to expand the CSI's current
operation in Buenos Aires to other ports in Argentina. While any
future expansion of CSI operations worldwide requires legislative
review by the U.S. Congress and no additional CSI staff are likely
be assigned to Argentina in the coming year, Ambassador welcomed
solutions offered by the GoA to increase the monitoring capabilities
within the existing CSI operation, including the use of remote
scanning operations and/or training of Argentine staffed teams.

Abad noted that his Director of Customs, Ricardo Echegaray hopes to
utilize remote cameras to expand CSI coverage beyond the Port of
Buenos Aires' Exolgan Terminal to additional terminals there and to
two maritime ports in the Province of Buenos Aires, Zarate and
Campana.

--------------------------------------------- -------
GoA on "9/11" Maritime Cargo Scanning Law Compliance
--------------------------------------------- -------

11. (SBU) Ambassador recalled his September discussion with AFIP
Echegaray (Ref B) on Congress' passage of the 9/11 Act that mandates
all U.S.-bound shipping containers be scanned at foreign ports
beginning July 2012. Abad had raised the idea creating a database
of Argentine exporters determined to be legitimate and trustworthy
("operadores confiables") and sharing this information with the DHS
Customs and Border Patrol officials to facilitate expeditious entry
of goods into the U.S. from Argentine businesses. Ambassador
outlined the U.S. Customs-Trade Partnership Against Terrorism
(C-TPAT) which has established similar programs with Australia and
New Zealand.

12. (SBU) Abad was familiar with C-TPAT and with recent
U.S./European Union discussions along these lines. He looked
forward to getting additional information from the U.S. Customs and
Border patrol officials. (Note: A subsequent November 16 meeting
was arranged with Echegaray by ICE with visiting C-TPAT officials to
explain the C-TPAT program and explore the potential for a future
partnership arrangement with Argentina.) Abad said that, while the
GoA understands the motivation behind the 9/11 law and is developing
plans to comply with its somewhat onerous provisions, others are not
so supportive. He noted the comments of World Customs Organization
(WCO) Secretary General Michel Danet who, during a WCO piracy and
trademark fraud conference in Buenos Aires in early November, said
that this law is "crazy" and "useless." (Danet was quoted in local
media as saying "The law is crazy and useless. It is a unilateral
(U.S.) decision which imposes additional costs on the rest of the
nations and is a step backwards because it is 100% about control and
does not consider risk analysis.")

-------
Comment
-------

13. (SBU) With a background in accounting (Price Waterhouse), Abad
was appointed to head AFIP by interim President Duhalde in January
2002. He was retained in his position by President Kirchner with
good reason: Abad is considered one of the most capable and
competent technocrats in Argentine government today, and his record
in enhancing AFIP's professionalism and in expanding customs and tax
collection is widely recognized. Post supports Abad's desire to
establish a closer working relationship with the IRS and concurs
with his assessment that a broader exchange of tax information would
further our joint priorities in combating money laundering and
terrorist finance. Treasury may wish to consider an invitation for
Abad to visit his IRS counterparts in Washington. This could be
presented as a deliverable by a senior U.S. government official at
the upcoming December 10 CFK inauguration in Buenos Aires.

WAYNE

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