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Billionaire Dodges Argentina Tax Sending Cash to Holland

April 30, 2013

Billionaire Roccas Dodge Argentina Taxes

With operations worldwide, the Roccas's Techint Group still relies on Argentina for much of its output and revenue. Photographer: Giuseppe Aresu/Bloomberg

When Argentina canceled its double-taxation treaty with Spain last year, it had a lot to do with a billionaire named Paolo Rocca, the world’s 105th-richest man.

Rocca, an Italian citizen living in Argentina, transferred control of one of his Buenos Aires-based steel units in 2008 to Dirken Co., an Uruguay-based shell company, according to regulatory filings. Dirken, in turn, passed control to Ternium Internacional Espana SL, an entity domiciled in Valencia, Spain.

Nothing changed operationally for Techint Group, the Rocca family’s global industrial conglomerate. Instead, the move exploited a loophole in Argentina’s 1994 treaty with Spain, allowing its steel unit, Siderar SAIC, to avoid paying $16 million in taxes over three years, according to an official at the Argentine tax agency who asked not to be identified because the matter is private.

BILLIONAIRE TAX HAVENS

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“Naturally, one looks for a place where income that has already been taxed once isn’t going to be taxed again,” said Guillermo Cabanellas, managing partner at Buenos Aires-based law firm Cabanellas Etchebarne Kelly. “In Argentina, there’s also the perception that you can’t trust the legal framework. You try not to put all your eggs in the same basket.”

The Rocca family’s use of offshore structures illustrates how some of the world’s richest people manage, preserve and conceal their assets. For three generations, the family has employed a shifting array of holding companies to reduce their tax bill in the countries where they made their fortune. By funneling dividends from factories in Argentina to offshore havens, they also shield their wealth from defaults and nationalizations.

Billionaires Index

The Roccas declined to comment for this account, said spokeswoman Stefania Argento.

The family’s cat-and-mouse game with the Argentine government began in 1949, when Paolo Rocca’s grandfather Agostino established the San Faustin SA holding company in Uruguay. The family moved San Faustin to Panama in 1959, to Curacao in 1990, and then to Luxembourg in 2011, controlling it with side entities in the British Virgin Islands and the Netherlands along the way.

The Roccas control a $10.4 billion fortune, according to the Bloomberg Billionaires Index. With operations worldwide, their Techint Group still relies on Argentina for much of its output and revenue.

Not Safe

The conglomerate’s publicly traded Tenaris SA (TEN) is the world’s largest manufacturer of seamless steel tubes for the oil industry and generates 60 percent of the family’s wealth, according to data compiled by Bloomberg. Domiciled in Luxembourg, the company began as a steel factory in Argentina in 1948, and more of its employees still work in that country than in any other, the annual report shows.

Paolo Rocca is Tenaris’s chairman and chief executive officer, and leads the company from its offices in Buenos Aires.

The Roccas’ other main publicly traded venture, Luxembourg-based Ternium SA (TX:US), is the biggest supplier of flat steel in Argentina. Tecpetrol SA, their closely held oil producer, pumps crude oil from 13 blocks in the northwest of the country.

The Roccas “probably don’t feel safe having their money in Argentina,” said Alessandro Belluzzo, a lawyer who handles wealth planning issues at Belluzzo & Partners in London. “It’s about protection.”

Last year, President Cristina Fernandez de Kirchner nationalized YPF SA (YPFD), Argentina’s largest oil producer. The move deepened concern among investors that her government is following the lead of the late Venezuelan President Hugo Chavez, who took over the Roccas’ local steel unit in 2008.

Government Threat

Though Fernandez left Techint’s oil operation untouched, Paolo Rocca drew the government’s ire in September, when the Clarin newspaper quoted him criticizing Argentina’s competitiveness. In response, Deputy Economy Minister Axel Kicillof said in a television interview that the government ought to bankrupt the Roccas by pushing down the price of steel. Kicillof sits on the board of the family’s Buenos Aires-based Siderar, representing the minority stake held by Argentina’s social security program.

The Roccas’ $16 million tax dodge was discovered amid this clash. It also came as Argentina’s government, like others around the world, stepped up its campaign to increase tax revenue, boosting collection to a record 37 percent of gross domestic product last year from half that rate in 2002.

Netherlands Stichting

As part of that campaign, the country has signed information-exchange agreements with more than three dozen countries, helping it to enforce a wealth tax that, according to New York-based financial consultancy Deloitte & Touch LLP, covers as much as 1.25 percent of an individual’s net worth. That tax applies to assets abroad.

The Roccas use a Dutch foundation that helps them sidestep that tax by allowing them to disclaim ownership of the assets they control, according to Martin Litwak, a lawyer who specializes in wealth planning at Litwak & Partners in Montevideo, Uruguay.

In 2011, the Roccas created Rocca & Partners Stichting Administratiekantoor Aandelen San Faustin, or RP STAK, a private foundation domiciled in the Netherlands. According to a filing with the U.S. Securities and Exchange Commission that year, RP STAK took custody of shares representing 52 percent of the votes and 40 percent of the total capital of Luxembourg-based San Faustin SA, the parent company for Techint’s operating units.

“What a foundation does is change ownership,” said Litwak. “In Argentina’s case, these assets technically don’t belong to the Argentine resident anymore.”

Helping Mussolini

In filings with the SEC, the Roccas assert that “no person or group of persons controls RP STAK,” echoing statements made to regulatory authorities in Argentina, Brazil and Spain.

In fact, it is controlled by members of the Rocca family, according to a person with knowledge of the foundation who asked not to be named because the matter is private.

RP STAK’s articles of association, published on the SEC’s website in 2011, describe an investment vehicle that has little in common with a charitable foundation. Its stated objective is to hold shares for its depositors and distribute dividends to them. A voting committee, whose chairman is Paolo Rocca, determines how to vote the foundation’s shares in San Faustin. The committee’s other members are Paolo’s brother Gianfelice, two cousins and two non-relatives.

The Techint empire has its roots in pre-World War II Italy. Agostino Rocca, Paolo’s grandfather, joined Mussolini’s government in the wake of the Great Depression to help oversee reconstruction of Italy’s industry. His role shoring up companies and then rejiggering them as defense contractors during the 1930s earned him the title of “inventor of Italy’s steel industry,” according to a June 2003 article in Italy’s Il Corriere della Sera newspaper.

Hedged Bets

Agostino Rocca founded Techint in Milan in 1945 to bid for engineering contracts around the world. He made his first foray into Argentina later that decade to build a 1,000-mile pipeline.

Long before Fernandez would take over YPF, then-President Juan Domingo Peron nationalized railways, ports and public utilities. Rocca, building what what would become the crux of his family’s empire, hedged his bets.

In 1949, he set up the San Faustin holding company in Uruguay, according to a November 2011 article in Il Corriere. The country’s geographic proximity, cultural similarities and banking secrecy -- undermined when an information-exchange treaty went into effect earlier this year -- attracted Argentine businessmen to hold their investments there.

Double Taxation

Paolo Rocca was born in Milan in 1952. He joined the family business in Argentina after studying political science at the University of Milan and completing graduate work in management at Harvard University in Cambridge, Massachusetts.

As Techint became an increasingly global company, opening a seamless steel tube plant in Mexico to complement its operations in Argentina, Agostino Rocca moved San Faustin to Panama in 1959, according to Il Corriere. He died in 1978.

In 1990, Italy and the Netherlands signed a treaty to avoid double taxation, and Agostino’s heir Roberto Rocca, Paolo’s father, transferred the holding company to the Dutch island territory of Curacao, which also benefited from its parent country’s tax agreements. A separate company in the British Virgin Islands, Rocca & Partners SA, held Roberto’s and his sister’s shares in San Faustin.

Argentina blacklisted both Caribbean islands the following year, hindering the flow of money between the tax havens and the South American country, according to Litwak, the Uruguayan lawyer. The result, he said, was a gradual migration to countries such as Luxembourg that have remained in the clear.

Asset Protection

In 2011, San Faustin was transferred to Luxembourg, which has a population one-third the size of New York’s Upper East Side neighborhood, and Rocca & Partners became the Dutch foundation RP STAK.

Over the years, the Roccas’ parallel structure of holding companies offshore has proved an effective asset protection tool. When Argentina defaulted on its debt in 2001, freezing bank accounts and devaluing the currency, many citizens saw their savings wiped out. The Roccas had already sent much of their earnings to the Caribbean.

Despite the bluster of Fernandez or Kicillof, her deputy economy minister, the fact is that Argentina can’t bankrupt the Roccas. And even as the government closes loopholes, the billionaires will have help in finding new ones.

“There’s no magic solution,” said Carlos Loaiza, who advises Argentine clients on tax planning as a partner at the Sanguinetti Fodere Abogados law firm in Montevideo, Uruguay. “Before, clients used to say, ‘I want something that will work for a whole lifetime.’ They’re much more accepting now when one says, ‘This is something you can do for a year or two.’”

To contact the reporters on this story: Alex Cuadros in Sao Paulo at acuadros@bloomberg.net; Pablo Gonzalez in Buenos Aires at pgonzalez49@bloomberg.net

To contact the editor responsible for this story: Matthew G. Miller at mmiller144@bloomberg.net


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