New legislation to end off-shore tax shelters and comments from Correa, indicate that inheritance and capital gains tax increases are ‘off the table’

Several political analysts say we will not hear about proposed inheritance and capital gains tax increases for quite awhile, possibly for years.

National Assemblyman Galo Borja.

“I think they’re off the table for the foreseeable future,” says Wilson Vasquez, a consultant to international businesses and former trade officer for the Ecuadorian government. “There probably won’t be an official announcement but it’s clear they won’t be a topic of conversation for the government any time soon.”

The tax increases, proposed by President Rafael Correa in May, prompted large protests and the proposal was withdrawn in August. At the time, the government said it would revisit the issue following several months of “national dialogue.”

Vasquez said that new legislation to stop evasion of inheritance taxes through the use of off-shore trust accounts and other methods is a clear indication that government is shifting its focus from adding new taxes to collecting existing ones. Correa sent the proposed legislation to the National Assembly in late October.

“If there was going to be higher taxes on inheritances, it would have been coupled with this new legislation,” Vasquez says. He adds that the government plans to use the additional money collected under the new rules to fund university scholarships. “This was the stated objective of higher inheritance taxes announced in May,” he says. “The government is simply taking another approach and signaling that the tax increase is no longer being considered.”

Vasquez said he doesn’t see any major changes in capital gains taxes either. “During last week’s economic debate, Correa made it clear that now is not the time for a tax fight. Property owners and businesses are breathing a big sigh of relief.”

The proposed tax shelter legislation targets inheritance assets transferred to foreign or domestic trusts, particularly in countries identified as tax havens.

Vice President of the Assembly’s Economic Systems Commission, Galo Borja, says that currently shifting money off-shore is not “illegal, it’s just unjust.” The legislation will make it illegal.

The proposed law would tax capital gains from legacies, donations, and other transfers regardless of the place of death, nationality, domicile or residence of the deceased or his or her heirs.

The bill, comprising two articles and a transitional provision, also cover transfers of goods or rights in Ecuador that have been isolated from personal assets using companies, private nonprofit institutions, property or trusts; as well as those up to the date of death in established in tax havens, jurisdictions with lower tax rates or preferential arrangements.