Castellán

The norm, following the government's policy of adapting to the standards recommended by the OECD, regulates various points that have a significant impact on business and personal activities.
Through this article, we will briefly review some of these novelties and modifications, especially those related to banking secrecy, as well as new obligations for holders of nominative shares.
It is important to mention, however, that a large part of this law refers to the regulations that the Executive Power will make, so it will be necessary to make the relevant clarifications once it becomes effective.

New reality of banking secrecy in Uruguay.

The aforementioned International Fiscal Transparency Law already in its first article establishes that financial entities are obliged to report to the DGI:
- the balance or value of the account at the end of the calendar year as well as its average annual during the year or, in the case of account cancellation, the cancellation of the same.
- any gain or return generated by the balance or value in the account and by financial assets in custody or in investment on behalf of third parties, regardless of their nature or denomination.
- debt securities or participation in the capital of trusts, investment funds, as well as the balances corresponding to any beneficiary.
The norm establishes an obligation to report to financial entities, radically reversing the current system. The law itself defines who these \"financial entities\" are obliged to report annually:
- those engaged in financial intermediation activities; that is, the Banks.
- all entities engaged in custody or investment activities on behalf of third parties, even if they are not under the supervision of the Central Bank of Uruguay.
- insurers, in relation to insurance contracts when they establish the recognition of the savings component in the individual account, and life annuity contracts.
Furthermore, these financial entities obliged to provide this information must also identify the tax residence of individuals, legal entities, or other entities that hold accounts with them.
That is, as a new requirement of due diligence that these entities must carry out with respect to their clients, the obligation to obtain and identify the tax residence of clients is now added. So much so, that from the entry into force of the new norm, new accounts cannot be opened or debt securities or participation issued without complying, among others, with this requirement. All of the above is subject to the procedures established by the Executive Power.

Obligation to report holders of nominative shares.

In due course, Law 18,930, which entered into force on August 1, 2012, expressly established the obligation of joint-stock companies with capital represented by bearer shares to provide information on the identity of their holders.
As we expressed in due course ( http://www.castellan.com.uy/es/noticias/13/ley-18-930-iquest-el-anonimato-en-las-nominativas.html), the Law not only excluded holders of nominative shares from the reporting obligation, but also established a special regime that facilitated and streamlined the potential transformation of bearer shares into nominative shares, especially providing that in such cases companies could request exclusion from the registry created. In this context, a significant percentage of companies that had their capital represented by bearer shares chose to transform their shares into nominative shares.
Well, the recent Law enacted in this regard makes a new high-impact modification by establishing the obligation of companies and entities with nominative or scriptural shares to communicate to the Central Bank of Uruguay the identifying data of their holders as well as the percentage of their participation in the corresponding social capital, just like with bearer entities.
Likewise, any subsequent modifications must be reported within thirty days of verification, or ninety days if the holders are non-residents.
Therefore, this new obligation definitively equates companies with nominative shares to companies with bearer shares, who already had this obligation.

Obligation to identify ultimate beneficiaries.

Finally, according to the new law as of January 1, 2017, all resident entities, whether they have bearer or nominative securities, and some non-residents, must unequivocally identify their ultimate beneficiaries, having the documentation that proves it convincingly.
Understanding as an ultimate beneficiary the natural person who, directly or indirectly, owns at least 15% of the capital or its equivalent, or voting rights, or who in other ways exercises final control over an entity, considering such a legal entity, a trust, an investment fund or any other affected patrimony or legal structure.
And final control will be understood as exercised directly, or indirectly through a chain of ownership or through any other means of control.
The consequence of omitting these obligations is the impossibility for entities to pay profits or dividends, redemptions, recessions, or the result of the liquidation of the entity, as well as any similar nature item, to holders or beneficiaries regarding whom the obligation to identify the ultimate beneficiaries has not been fulfilled.
Failure to comply with the provisions may result in a fine of up to the amount improperly distributed.
This obligation applies to all resident and several non-resident companies. However, in addition, any company with nominative shares (or any other nominative participatory title) must not only have this information but also provide it to the Central Bank of Uruguay (as it must report the holders of its shares).

Regulation and Sanctions.

It must be mentioned that everything exposed in this document is subject to the regulation of the Executive Power. That is, although the regulations are currently in force, the Executive Power must establish compliance deadlines, as well as the necessary models or requirements for their implementation.

Primary final reflections.

The law recently passed by Parliament seeks to comply with the recommendations of the OECD and thus maintain Uruguay's competitiveness in international markets. It can be assumed that the modifications to banking secrecy will have, at least in the long term, a high impact on the management of investors' and savers' funds.

Montevideo, February 1, 2017.