Panama Investor Blog

U.S. & Panama Tax agreement in English

I want to thank John H, one of my avid readers, for sharing this important information with us.

Below you will find a machine translation of the Tax agreement that is to be signed by Panama and the U.S. on the 30th of November. I have also included an article  from La Prensa with comments by the  Minister of Finance and other interested parties.

My understanding after reading these brief 12 articles is that it gives the U.S. complete access to any information it may request on any U.S. resident or citizen who it believes may hold assets in Panama.

Last week the minister of Finance and Economy stated that the U.S. would need to have a criminal investigation open on an individual before information could be requested, but I see nothing in this agreement that requires this. I have spoken to several senators this morning who were surprised that the agreement does not include that requirement and question whether it would be ratified by the assembly without it. We will have to see how the assembly handles it when they get back in session in January.

According to the agreement as it is currently written, the only limitation is that the U.S. cannot just ask for names of U.S. persons who may have assets in Panama. They have to have an individuals name and present it to the Panamanian authorities. I see nothing in the agreement preventing the U.S. from giving a list of names without limit. I see nothing in this agreement that would prevent the U.S. from requesting information on an individual that has done nothing more than traveled to or from Panama.

The requesting party only need contact the requested party with the name and reason for requesting the information (that it falls under tax investigation) and then the requested party is obligated to go to the banks, public registry, legal agents, and investment houses and see what that individual controls.  This falls in line with recent changes of the laws in Panama where the beneficial owners of all society anonymous must be on record and the authorities must have access to this information.

If you are a U.S. resident or citizen and are thought to have any monies or assets held in Panama, the U.S. government now has the right and the means to know about it and only needs to make a request to receive it.

Unless the assembly stops this from going forward, it appears that after November 30 2010 and ratification by the assembly, hunting season will be open.

I am providing a copy of the agreement in its original Spanish at the bottom.

 

AGREEMENT BETWEEN
THE GOVERNMENT OF THE REPUBLIC OF PANAMA
AND
THE GOVERNMENT OF THE UNITED STATES OF AMERICA
FISCAL COOPERATION AND EXCHANGE OF INFORMATION WITH RESPECT TO TAXES

Whereas the Government of the Republic of Panama and the Government of the United States of America ("the Parties") wish to establish the terms and conditions governing tax cooperation and exchange of information relating to taxes;

Accordingly, the Parties have agreed as follows:

ARTICLE 1
SCOPE OF AGREEMENT

The competent authorities of the Parties shall provide assistance through exchange of information that might be relevant to the administration and enforcement of domestic legislation of the Parties concerning taxes covered by this Agreement, including information that may be relevant for identification, assessment, enforcement or collection of taxes with respect to persons subject to them, or for investigation or prosecution of criminal tax matters.

ARTICLE 2
JURISDICTION

The information is provided in accordance with this Agreement by the competent authority of the requested Party, regardless of whether the person to whom the information relates is a resident or if the information is held by a resident of a Party. However, the requested Party is not obliged to provide information that is not in its custody or possession or control of persons within its territorial jurisdiction. For purposes of the preceding sentence, "authorities" includes all government agencies, political subdivisions and local authorities.

ARTICLE 3
TAXES COVERED

1. This Agreement shall apply to the following taxes imposed by the Parties:

(A) in the case of the United States, all federal taxes, and

(B) in the case of Panama, all national taxes.

2. This Agreement shall apply equally to all identical taxes established after the date of signature of this Agreement to be added or to replace existing taxes. This Agreement shall also apply to substantially similar taxes that are imposed after the date of signature, to add or replace existing taxes if the competent authorities of the Parties so agree. The competent authority of each Party shall notify the other of any substantial change in taxation and in the information gathering measures covered by this Agreement.

3. This Agreement shall not apply to taxes imposed by states, municipalities or other political subdivisions, or possessions of the Parties.
 

ARTICLE 4
DEFINITIONS

1. In this Agreement the term:

(A) "competent authority" means, for the United States, the Secretary of the Treasury or his representative, and Panama, the Ministry of Economy and Finance or his representative;

(B) "criminal tax matters" means tax matters involving intentional conduct which is liable to prosecution under the criminal laws of the Requesting Party;

(C) "criminal laws" means all criminal laws designated as such by national law, irrespective of whether contained in the tax law, penal code or other laws;

(D) "information" means any act, statement, document or record in whatever form;

(E) "information gathering measures" means judicial, regulatory, criminal or administrative action to allow the requested Party to obtain and provide the information requested;

(F) "national" of a Party means:

i) any natural person possessing the nationality or citizenship of that Party;

ii) any legal person, partnership or association to obtain that status in accordance with the laws of that Party.


(G) "person" means a natural person, corporation or any other organization or group of persons;

 (H) "requested Party" means a Party to this Agreement who has been asked or has provided information in response to a request;

(I) "Party" means a Party to this Agreement submits an application or who has received the requested information, and

(J) "tax" means any tax covered by this agreement established a national or federal level by a party, not including customs duties.

2. For the purposes of determining the geographic area within which can be exercised jurisdiction to compel the delivery of information, the term "United States" means the United States of America, including Puerto Rico, the Virgin Islands, Guam, and any other possession or territory of the United States.

For the purposes of determining the geographic area within which can be exercised jurisdiction to compel the delivery of information, the term "Panama" means the territory of the Republic of Panama, according to its legal and international law.

3. Any term not defined in this Agreement, unless the context otherwise requires a different meaning, or the competent authorities agree on a meaning in accordance with the provisions of Article 9 of this Agreement, shall have the meaning attributed to it by law party seeking the application of this Agreement, any meaning assigned by the tax laws of that Party on the meaning given to that term in other laws of that Party.

 

ARTICLE 5
EXCHANGE OF INFORMATION ON REQUEST

 1. The authority of the Requested Party shall provide upon request of the competent authority of the requesting information for the purposes referred to in Article 1 of this Agreement. This information will be exchanged regardless of the requested Party may not need such information for its own tax purposes or the conduct being investigated would constitute a crime under the laws of the Requested Party if it had occurred on the territory of the requested Party . The competent authority of the requesting party may lodge a request for information under this Article when it is not able to obtain the requested information by other means, unless the use of such media lead to disproportionate difficulties.

 2. If the information held by the competent authority of the requested Party is not sufficient in order to comply with the request for information, the competent authority of the requested Party shall take all relevant information gathering measures to provide the party requesting the information requested , although the requested Party may, at that time, not need such information for its own tax purposes. Privileges under the laws and practices of the requesting Party shall not apply to the requested Party to execute a request for information and such matters are reserved for resolution by the requesting Party.

3. If specifically requested by the competent authority of the Party, the competent authority of the requested Party shall, to the extent possible under its domestic law

(A) specify the date and place for taking testimony or the production of books, documents, records and other tangible property;

(B) take an oath to the individual to give testimony or produce books, documents, records and other tangible property;

(C) protect the books, documents and original and unpublished records, and other tangible property;

(D) obtain or submit true and correct copies of books, documents and records original works

(E) to determine the authenticity of the books, documents, records and other tangible goods produced and provide certified copies of original documents;

(F) examine the individual submitting the books, documents, records and other tangible property in relation to the purpose and manner in which the respective element is or was maintained;

(G) to allow the competent authority of the requesting party to provide written questions to which the person making the books, documents, records and other tangible property is liable in relation to the items produced;

(H) any other act that is not in violation of the laws or administrative practice fight with the requested Party;

(I) certify the procedures as requested by the competent authority of the requesting Party were followed or that the procedures requested could not be followed by an explanation of the deviation and why were not followed.

4. Each Party shall ensure that it has the power to give effect to the provisions of Article 1 of this Agreement and, subject to Article 2 of this Agreement, to obtain and provide, through its competent authority and upon request:

(A) information held by banks, other financial institutions and any person, including nominees and trustees, acting in a representative or fiduciary, and

(B) information relating to the ownership of companies, partnerships, trusts, foundations and others, including the limitations set forth in Article 2 of this Agreement, the ownership information of all persons in an ownership chain , in the case of trusts, information on settlors, trustees and beneficiaries and in the case of foundations, information on founders, members of the board of trustees and beneficiaries.

However, as provided in subsection 4 (b) above, this Agreement does not impose an obligation for parties to obtain or provide information about publicly traded companies or public funds or collective investment schemes, unless such information can be obtained without incurring disproportionate difficulties.

5. All requests for information made by one party must be made with the highest degree of specificity possible. In all cases, such requests must specify in writing the following:

(A) the identity of the taxpayer whose taxes or criminal liability which is under investigation;

(B) the time period over which information is sought;

(C) the nature of the information requested and the manner in which the requesting Party would prefer to receive it;

(D) the matter under the tax laws of the requesting Party for which the information is requested;

(E) the reasons that they subscribe to the belief that the requested information may be relevant to the tax administration requested and the execution by it in relation to the person identified in subsection (a) of this paragraph;

(F) reasons for believing that the information requested in the requested Party or is in possession or control of a person within the jurisdiction of the Requested Party;

(G) to the extent they can be determined, the name and address of any person believed to be in possession or control of the information requested;

(H) a statement whether the requesting party may obtain and provide the information requested if a similar request was made by the requested Party;

(I) a statement that the requesting party has exhausted all reasonable means at their disposal in their own territory to obtain the information, except in cases this leads to disproportionate difficulties.

ARTICLE 6
POSSIBILITY TO REFUSE AN APPLICATION

1. The competent authority of the requested Party may refuse a request for assistance:

(A) when the application is not made in accordance with this Agreement;

(B) where the Party has not exhausted all reasonably available means in their own territory to obtain the information, except that resort to such means to rise to disproportionate difficulties, or

(C) if disclosure of such information is contrary to public policy of the requested Party.

2. This Agreement shall not impose upon any Party the obligation:

(A) provide the information under the laws of the requested Party is (i) subject to professional secrecy or (ii) contains any trade secret, industrial, commercial or professional secret or trade process, provided the information described in paragraph 4 (a) of Article 5 of this Agreement shall not be treated by that fact alone as a secret or trade process, or

(B) administrative measures at variance with its laws and administrative practices, provided that nothing in this paragraph (b) impair the obligations of a Party under paragraph 4 of Article 5 of this Agreement.

For purposes of paragraph 2 (a) (i), the term "information subject to professional secrecy" means information that would reveal confidential communications between a client and an attorney, when such communications are made to seeking or providing legal advice or intended to be used in existing or anticipated legal proceedings.

3. A request for information may not be refused on the grounds that the tax liability giving rise to the application is contested by the taxpayer.

4. The requested Party may refuse a request for information if the information is requested to administer or enforce a provision of tax law of the requesting Party, or any requirement connected to it, which discriminates against a national of the requested Party, compared with a national of the requesting Party under the same circumstances. Shall be deemed a tax provision or a requirement for it discriminates against nationals of a state required when, in similar circumstances, the standard becomes more onerous for them than it was for national of the requesting state. For the purposes of the preceding sentence, a national of the requesting Party that is subject to tax on their worldwide income is not in the same conditions as nationals of the requested Party, which is not subject to tax on their worldwide income. The provisions of this paragraph shall not be construed as preventing the exchange of information with respect to taxes imposed by the Parties on the profits of branches or on premium income of foreign insurers.

 5. The Party shall not be obliged to obtain and provide information to the requesting Party would not be able to obtain under its own laws in similar circumstances in order to administer or enforce its own tax laws or in response to a request by the party required under this Agreement.

6. The statute of limitations in the law of the requesting Party concerning taxes described in paragraph 1 of Article 3 of this Agreement, governing the application of information exchange. The expiration of the limitation period established by the laws of the requested Party relating to such taxes shall not prevent the requested Party to obtain and provide the requested information.

ARTICLE 7
CONFIDENTIALITY

Any information received by the requesting Party under this Agreement shall be treated as confidential and be disclosed only to persons or authorities (including courts and administrative bodies) in the jurisdiction of the requesting party responsible for the identification, collection, enforcement, prosecution or resolution of Appeals for the taxes to which this Agreement, or supervisory bodies to the extent necessary for individuals, authorities or bodies to fulfill their respective responsibilities. Such persons or authorities shall use this information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions. The information received by the requested Party, along with the request for assistance under this Agreement shall also be treated as confidential by the requested Party. The information will not be disclosed to any other person, entity or authority, or used for purposes other than those set forth in Article 1, except in cases where the requested party's prior written consent provided that the information can also be used to the purposes permitted in accordance with the provisions of the existing Mutual Legal Assistance Treaty in Criminal Matters between the parties, signed on April 11, 1991, under the same may be amended. In any case the information provided under this Agreement is disclosed to another country without the express prior written consent of the competent authority of the Party providing the information.

ARTICLE 8
COSTS

Unless the competent authorities of the Parties agree otherwise, the recurrent costs of assistance shall be borne by the requested Party and the extra costs incurred in providing assistance shall be borne by the requesting Party.

ARTICLE 9
MUTUAL AGREEMENT PROCEDURE

1. Where difficulties or doubts arise between the parties on the application or interpretation of this Agreement, the competent authorities will do their best to resolve the matter by way of mutual agreement.

2. The competent authorities may adopt and implement procedures to facilitate implementation of this Agreement, including additional forms of information exchange to promote more effective use of information.

ARTICLE 10
PROCEDURES FOR MUTUAL ASSISTANCE

If the competent authorities of both Parties deem it appropriate, may agree to exchange expertise, develop new audit techniques, identify areas of noncompliance, and jointly study areas of noncompliance.

ARTICLE 11
ENTRY INTO FORCE

The Parties shall notify to reciprocate when they have completed their internal procedures necessary for entry into force of this Agreement. This Agreement shall enter into force on the later of the dates of such notifications. Once the Agreement enters into force, it will have effect for applications to be made on or after the date of enactment, with respect to matters pertaining to fiscal years beginning on or after three years prior to signing this Agreement.

ARTICLE 12
TERMINATION

1. This Agreement is effective until terminated by either party.

2. Either party may terminate this Agreement by written notice to the other party. Such termination will be effective the first day of the month following the expiration of a period of three months after the date of receipt of notice of termination.

3. If either Party terminates this Agreement without prejudice to such termination, both Parties shall be bound to comply with the provisions of Article 7 of this Agreement with respect to any information obtained under this Agreement.

 
IN WITNESS WHEREOF the undersigned duly authorized for this act by the respective Parties, have signed this Agreement.
 
DONE at Washington, in duplicate, in English and Spanish languages, both texts being equally authentic, on November 30, 2010.

FOR THE GOVERNMENT OF THE REPUBLIC OF PANAMA FOR THE GOVERNMENT OF THE UNITED STATES OF AMERICA



JUAN CARLOS R. VARELA
Vice President and Minister of Foreign Affairs



Timothy Geithner
Treasury Secretary

Download COOPERACION_FISCAL_PANAMA_EUA 1

From La prensa:

Rafael E. R. Berrocal
Edith Castillo Duarte
[email protected]

Contrary to the apprehensions of some sectors, the Economy and Finance Minister, Alberto Vallarino, came out yesterday in defense of the agreement to exchange tax information with the United States will be signed next Tuesday.

The fear is that the deal put at a disadvantage to the Panamanian banking center for the benefit of banks operating from Miami, in the opinion of counsel Edward Morgan.

The Banking Association of Panama (ABP) declined yesterday to issue a position to better analyze the issue. But Vallarino no negative effects, but benefits that will help Panama in a white list of the Organization of Economic Cooperation and Development (OECD) as well as to attract higher income in the tourism sector.

After the signing in Washington, Panama will be only two covenants requiring minimum of 12 OECD to exclude a country from its list of tax havens. For the U.S., the benefit is that Panama should ensure their tax information to individuals or businesses. This means information held by banks, other financial institutions and any person.

Panama also undertakes, in a supplementary note to the agreement, to approve a bill to identify the holders of bearer shares.

The MEF said yesterday that the identification of the bearer shares and is part of a bill that is included in the nine agreements signed by Panama, which was prepared by the International Bar Association.

"Here is a background of other, as these same lawyers have applauded the double taxation treaties negotiated. We should ask if they are protecting a specific business, "said Vallarino.

With the agreement, Panama also obtained a decrease in the tax on remittances of about $ 50 million per year, representing about 50% of what it collects annually national treasury for this purpose, according to MEF.

Another point that emphasizes the institution is that the United States agreed on an additional note to agree that their citizens and businesses can deduct from income costs incurred while attending conferences or conventions in Panama.

REPORT TO THE BANK

Vallarino met yesterday with the ABP to explain the path to signing the agreement.

The president of the ABP, Moses Cohen, declined to comment until this body considers the issue in depth.

Industry sources said that what happens is that "no consensus", because depending on the nature of each bank, some may be affected and not others.

The lawyer and former ambassador of Panama in Washington, Eloy Alfaro, not clear yet what wins Panama, as the country does not require information on earnings of its nationals abroad.

"Nor is it clear whether the conclusion of this agreement responds to U.S. pressure or is rather an informal gesture by the Panamanian government to promote better environment to the approval of Trade Promotion Agreement (TPA) or if for other reasons "he said.

Another scenario

To counsel Carlos Cordero, the benefits themselves are clear in the agreement.

"The competitiveness of Panama in the provision of legal and financial services will not be diminished by the conclusion of this agreement. Evidenced by the fact that there are many countries and jurisdictions that compete with Panama, which have concluded such agreements with the United States and its competitiveness is not affected, but on the contrary, has improved, "said Lamb.

He noted that the agreement eliminates the notion that Panama is a tax haven holding conventions draw by American companies and help improve the environment for approval by the U.S. Congress of the CPC.

Panama caves in to OECD demands

It is becoming clear that Panama will cave into the demands made by the OECD in order to get off of their "Tax Haven Grey List". Any pretense of putting up a fight has been put aside as the ministry of finance has announced it will comply with their demands. Panama had tried to appease their masters by signing a flurry of double taxation treaties with countries around the world, but it is not enough to satify these self declared rullers of the financial system. You can be sure that Panama's much needed loans for the many planned infrastructure projects is a driving factor in their decision. No compliance and you get no money!

The world economy is putting a greater strain on world governments to find more money to keep their fraudulent system of fiat currency going and they believe much is being hidden by foreigners in Panama Corporations with bank accounts around the world. The fact is that "they" want to know who has what and where it is in order to either levy taxes on it or just take it at a later date IMO.

Translated from La Prensa

The country is making changes to its legislation in order to catch up on the recommendations that the agency made him in a recent evaluation.

Edith Castillo Duarte
[email protected]

Panama has done and continues to make adjustments to its domestic legislation to allow access to tax information exchange in accordance with the Treaties to avoid double taxation (DTT), but now it is necessary to improve these efforts, because made are not sufficient to reflect fully the complexities of international cooperation in tax matters.

This is one of the comments that the Organization for Economic Cooperation and Development (OECD) makes in the final report on the steps being taken by Panama to leave the "gray list", which is labeled as "tax haven".

The reluctance to sign agreements Tax Information Exchange (TIEA, for its acronym in English), and opt for the TDT as an information exchange mechanism, is one of the "significant problems", including four points, which for OECD facing Panama on transparency to the exchange of information.

"More changes in legislation are necessary to ensure that information is available and accessible to the Panamanian authorities," the report said.

At this point, the OECD refers to the availability of information on corporations, bearer shares and income from investments generated whether or not in this country.

The document warns that the review was based on information until May 2010, also refers to new information provided by the Government in September this year for all actions you take, so go to welcome advice from OECD (see table).

The Minister of Economy and Finance, Alberto Vallarino, reported that taking these latest tips, legislation was amended to allow the Internal Revenue Service (DGI) seek information from any person in Panama, including banks, even when there is no tax interest home, and exchange such information with tax authorities of other countries which have concluded a tax treaty with Panama (Law 33 of 2010).

It has created as part of the DGI, the International Taxation Unit and another Unit Information Exchange, for a manage everything related to this matter.

Shortly be submitting a draft law that strengthens the obligation of the Company and Resident Managers Private Foundation to implement the policy of "know your customer", which forces them to rely on information from his client and the identity of owners of such vehicles, including cases where bearer shares are issued.

Following the publication of the report on 4 October, has generated a controversy of a group of specialists in this field, which argues that the OECD is requiring the firm to stop TIEA consider the country a "tax haven" and Others say that this "is not a sine qua non".

Some of the sources agree that the OECD what you want is to force Panama to sign TIEA, several countries have accepted, but that they have no relevance in the international financial services.

Vallarino TDT warns that go beyond a TIEA, as well as the exchange of information, also include provisions to avoid double taxation, "objective we seek to make our country more competitive for foreign investment without making great sacrifices tax" .

As the document stands, Panamanian authorities hope that the Review Panel of the OECD Global Forum made an additional assessment in the first quarter of 2011, but reports that Panama's position will be reviewed when submitting a detailed report and that will be within a year.

The group recommended that Panama does not pass the second stage of review (in the second half of 2012) until executed or acted on the recommendations contained in the report of the first phase (September 2010) to improve its regulatory framework and legal.

Panama "drug-pusher, money-laundering, tax haven, fiscal paradise Act."

Well, that's a pretty derogatory remark about Panama, but not at all surprising coming from the socialist bunch who want to see any advantage Panama has in the financial world eliminated. As this article points out, "Over the past week, the NDP and the Bloc Québécois have repeatedly raised concerns about Panama being a "tax haven," which is a country that levies little to no tax on foreign businesses, and which shares insufficient tax information with foreign governments hoping to track down tax-avoiding companies."

They speak as if there is no money laundering going on in Canada or the U.S. and Panama is the main guilty party. I contend more foreigners use the U.S. as a tax haven then Americans use Panama. But this game will go on and Panama will probably capitulate because it needs to borrow vast sums and these FTA's put it in a better position to do so. I just want to know how the politicians and other bureaucratic thugs plan on hiding their ill-gotten gains after the eliminate all privacy from the face of the globe. How long will this continue? Until chaos reigns and fiat currencies are no longer of any value. Then it will be every country for itself, just like the good old days.

From the Embassy website:

With the Canada-Colombia free trade deal now in force, many felt the government could expect relative quiet when it comes to other, less controversial trade pacts. Yet the proposed free trade agreement with Panama has some opposition members suggesting the government is again making deals with the devil, potentially setting the stage for another drawn-out battle.

On Sept. 23, the government introduced Bill C-46, implementing legislation for the free trade agreement the government signed with Panama in May. The bill is currently being debated at second reading.

Over the past week, the NDP and the Bloc Québécois have repeatedly raised concerns about Panama being a "tax haven," which is a country that levies little to no tax on foreign businesses, and which shares insufficient tax information with foreign governments hoping to track down tax-avoiding companies.

While a sovereign country can design any financial system it wishes, they argue Panama has a combination of weak taxes and weak financial transparency that deliberately attracts businesses that want to avoid public scrutiny. This in turn raises concerns about how these businesses will address elements like middle-class incomes, workers' rights, social programs and education.

That "tax haven" label was used dozens of times in House debates, typically in concert with accusations of Panama being a refuge for other shady attributes such as money laundering and drug proliferation. For example, on Sept. 30, NDP Trade critic Peter Julian called the bill a "drug-pusher, money-laundering, tax haven, fiscal paradise Act."

In an interview later with Embassy, Mr. Julian said his accusation stemmed from the government's "dysfunctional trade policy" that produces poor choices for Canadian trade partners. He said the US Internal Revenue Service, the American tax enforcement agency, "has more cases involving Panama than virtually any other country."

"The IRS is fuelling the investigations in the US, the relationship between the illegal dirty money going into Panama and the drug trade, and yet the Conservatives choose to sign an agreement with Panama that has no mention of money laundering or dirty drug money," he said.

"What it does is it basically rubber-stamps with approval the Panama government's approach to this dirty money."

The NDP and Bloc are presenting data to back up their concerns. The Organization for Economic Co-operation and Development, an international body that aims to promote democracy and market economies, and of which Canada is a founding member, has asked Panama for eight years to conform to more transparent rules and regulations, to no avail.

In a report issued Sept. 30, the OECD again blasted Panama for breaking its promises to adhere to financial transparency requests.

"Panama has committed to the international standards of transparency and effective exchange of information since 2002. Until very recently, however, it has had no involvement in international co-operation in tax matters and consequently its legal and regulatory framework has not been designed with such demands in mind," the OECD paper states.

"It is essential that additional steps are now taken to ensure that relevant information is available, that the appropriate authorities have access to it and that Panama can engage in effective exchange of information for tax purposes."

And concerns over Panama's tax regime are not unique to Canada. While the Bush administration signed an FTA with Panama in June 2007, Congress has been opposing it ever since over the tax status of Panama, and implementing legislation has not been introduced yet.

The Harper government argues the financial transparency of Panama has nothing to do with free trade. International Trade Minister Peter Van Loan said that while the government does have concerns about the tax issue with Panama, he has received commitments from the Latin American country that it will conform to Canadian requirements by July 2011.

Despite the Panamanian government's reneging on promises made to the OECD over the past eight years, he said he is still considering these new commitments to be genuine.

The government has the support of experts, a consensus of whom said the assertion that there was no connection between the financial transparency of Panama and the trade agreement is correct.

"Free trade has nothing to do with Panama being an offshore financial centre. In that case, we might as well not have free trade agreements with many parts of the world," said University of Ottawa international finance professor Patrick Leblond.

"I can't see that a free trade agreement with Panama would trigger much more use of Panama as a tax haven," echoed Sam Bucovetsky, an economist at York University.

An issue of engagement or trust?

American researchers have grappled for years with the problem of how trade agreements should deal with foreign tax issues. A widely-cited University of Michigan paper from 2001 acknowledges the relationship between tax and trade law, and a US Congressional research paper from February raises the concern in examining the US-Panama FTA.

Panama itself has recently given several indications that this time, with US and Canadian free trade agreements in the balance, it may finally begin to move to reform its system. It has been completing talks on taxation agreements with the OECD and with several countries, and in March it signed its first double taxation convention with Mexico.

Sensing this, the Liberals say they are in favour of a free trade agreement with Panama. Liberal MPs say they hope to move ahead with the bill and examine it in committee in order to work out any potential problems.

"Engagement is preferable to isolation" when it comes to setting up free trade agreements, said Liberal MP Bryon Wilfert. He said he thought that the appropriate place for debate over tax issues should be the committee, since its job is to examine the bill and recommend provisions that may need to be strengthened.

"Seventy-five to 80 per cent of this country is dependent on export markets. If you're looking for perfection, you're in the wrong business," he said.

Carlo Dade, executive director of the Canadian Foundation for the Americas, said the "tax haven" label has become "an issue with smaller economies that focus on financial services." Some countries in Latin America, he said, are in the business of supplying tax avoidance services because they are profitable.

"Were we a smaller economy that focused on financial services as a means for competitiveness, we would have a very different view of it," he said.

But he said the fact that Canada has had a foreign investment agreement with Panama in force since 1998 raises suspicions about the Panamanian government's insistence that it will commit to reforming its financial transparency.

Mr. Leblond said the issue now is whether Canada should use the "free-trade carrot" as a means to convince Panama and other tax avoidance services countries to conform with OECD standards.

Sam Boutziouvis, vice-president of economics and international trade at the Canadian Council of Chief Executives, said the organization has been involved in the Panama negotiations and has been in contact with businesses who wish the deal to be completed, but he declined to comment on the issue of Panama's tax status.

Panama's ambassador, Francisco Carlo Escobar Pedreschi, said he was looking into the issue, but did not respond in time for publication.

[email protected]

A dozen tax treaties signed, but will it satisfy the OECD?

Panama has gotten the 12 tax treaties signed which was the minimum required by the OECD in order to be removed from their black list. Will it be enough? Do the treaties compromise Panama's bank privacy laws? These and many other questions go unanswered thus far, but I would expect more light will shine on this subject as Panama demands to be removed from the black list.

La Prensa

Roberto Gonzalez Jimenez
[email protected]

With the closure of negotiations in South Korea and Singapore, Panama has reached twelve agreements to avoid double taxation and exchange of tax information.

Twelve treaties is the minimum required by the Organization for Economic Cooperation and Development (OECD) to remove the country from the list of tax havens, which the government says something will happen in 2011 in the next update of the list.

For that to happen treaties must have been signed by the respective governments.

For now, this procedure has only been surpassed by the agreements reached with Mexico, Barbados and Portugal, signed recently. The other agreements already concluded and signed are not those of France, Italy, Belgium, Spain, Luxembourg, the Netherlands and Qatar.

The Government intends to continue signing such treaties with more countries. Ireland, Czech Republic, Canada, Bulgaria, Hungary, Britain, Cyprus, Germany and Switzerland are some who have shown interest in negotiating with Panama.

Has Panama comprimised its bank secrecy laws with the double taxation treaties?

Panamanian banks are walking a fine line between confidentiality, which is guaranteed by law, and disclosure to other countries regarding their citizens accounts in Panama banks. It appears that Panama may have negotiated ten bilateral agreements regarding double taxation that could compromise their bank secrecy laws and cause a lot of foreign capital flight if a clear protocol is not put into effect. A recent meeting of the major Panama banks, and reported on by La Prensa, has brought some of this to light.

From comments made by bank management it appears that there may be some ambiguity in the way requests for banking information is to be handled. One glaring problem is that the overseeing body in Panama for requests made by foreign countries is the DGI (Panama's IRS). What incentive does a taxation authority have to withhold any information requested by a foreign entity regarding one of their citizens? None that I can think of.

From the remarks quoted by Eduardo Morgan it appears that there is a requirement in place  where the country making a request must produce proof of tax fraud of the bank client, but there seems to be concerns about what degree of proof must be submitted. If this is not made extremely clear and protected by law you can bet there will be a lot of fishing expeditions by high tax jurisdictions. What will be the value of having bank accounts in Panama if there is no bank secrecy? Where will the politicians hide all of their ill gotten gains?

Machine translated from La Prensa

EDITH CASTILLO DUARTE
[email protected]

There are two issues now that focus the discussion of the meetings of the Banking Association of Panama (ABP): The effects on the financial system with signed treaties to avoid double taxation (DTT) in the exchange of tax information, and potentially over-regulating the activity with the intention of the authorities of other countries.

The ABP recognizes that getting off the "gray list" of the Organization for Economic Development will have a positive effect for Panama and the financial system, but it remains concerned that one of the main clauses of the treaties being negotiated and signed for this purpose provide for the exchange of information and this could affect banking confidentiality.

Regulation and consultation

The topic of regulatory management dominated the panel on competitiveness and prospects of the international banking center in Panama that took place during the nineteenth banking convention which was attended, by the president of the ABP, Moses Cohen, the manager of HSBC, Ernesto Fernandez, Jorge Salas, Banesco, Ariel San Martin, Delta Bank, Miguel Valls, Andorra Credit Bank (Panama) and Rolando de Leon, Metrobank among others.

De Leon, who spoke as his former role as a regulator and not a banker, as he was commissioner of the National Securities Commission, recalled that currently they are in the process of adjusting the regulation  given the financial meltdown in the capital markets and urged the Superintendent of Banks to "avoid falling into the over-regulation," by trying to adopt rules of other countries that were affected by this crisis.

"This country and its banking system was able to circumvent the global financial crisis  because we  as bankers  were cautious at that time of doing business," he said.

De Leon called for a broad consultation process of the agreements intended to be adopted.

Speaking before the panel, the superintendent of banks, Alberto Diamond, spoke about what  effect the 10 new agreements will have on the  entity, including integrated credit risk, markets and derivatives.

In the United States, a country where the financial sub-prime crisis originated, they just adopted a new financial reform that deals with similar issues. It is very important that regulators take into consideration what is important to the process of consulting agreements, he said.

The TDT (double taxation treaty) and DGI

With respect to agreements to avoid double taxation, the president of the ABP,  stressed his concern about the impact they have on the banking confidentiality.

The greater concern lies in the fact that this exchange of information available to DTT will be through administrative channels of the Directorate General of Revenue (DGI) and not through the courts.

Taxes and protection

The DGI is the entity responsible for receiving requests for information requested by the countries of foreign clients with accounts in Panamanian banks, and they are bound by the treaty to give it.

"This is information management at the hands of a political and not judicial body and that worries us," said Cohen. Law 33 of June 2010 added a chapter to the Tax Code on Standards of adequacy for the TDT and conferred DGI responsibility in all matters related to this topic.

Attorney Edward Morgan, an expert in these matters and who was present at the panel, explained that such treaties have a protocol on the protection and obligations on the exchange of information and it states that the country requesting the information has to meet certain requirements when they submit the request for information.

"I think the best protection for our financial center is that a protocol is incorporated, when requests are made to the DGI for bank details,  to accompany this application with the documents justifying the request for the same," said the lawyer.

The country requesting information must prove that it is a tax fraud, he said, while recommending that the treaty be transferred if the bank is not satisfied with the way the DGI is requesting the information and insists in the order, may appeal to a superior entity to resolve the case.

"We have to seek protection. If you want information you must have documentation to prove it, and you also have to be sure that Panama does not give information which has been fraudulently obtained, "he said.

The pressure continues on tax havens

Mark Nestmann from the Sovereign Society writes this article which helps explain how the U.S. is attempting to dismantle all offshore tax havens and why these tax havens are being forced into compliance at a time when they had borrowed too much for infrastructure projects and one of their main income sources, tourism, is drying up. There is no mention of Panama in this article and I would say they are not nearly so dependent on tourism and offshore banking as the other jurisdictions mentioned. Even so, Panama as a service industry, is susceptible to the worlds overall financial health and needs to be careful with spending.

Offshore centers now face a perfect financial storm.

In more prosperous times, revenues from the offshore sector, along with tourism, helped fuel these countries' economies. Unfortunately, governments of these jurisdictions emulated those of developed nations. They borrowed loads of money to build up their infrastructure. They bought votes with social programs and bloated government payrolls. Of course, when the global economy tanked, tourist revenues fell, along with revenues from their offshore sectors. But the social programs and bloated payrolls remained.

Blame Offshore Tax Havens! (Again)

The economic crisis also led to worldwide drop in tax revenues. The biggest losers were big industrialized countries like the United States. And politicians found a convenient scapegoat for falling tax revenues: dozens of (mostly tiny) offshore centers. Using the economic crisis as their reason, the world’s richest and most powerful governments saw the perfect opportunity to achieve a long-term goal: forcing offshore jurisdictions to enforce their tax laws. They acted through non-governmental organizations they control, such as the Organization for Economic Cooperation and Development (OECD). The OECD has the authority to issue supposedly non-binding "best practices" guidelines. And, the OECD now decrees that “best practices” meant becoming tax collectors on behalf of these rich and powerful governments. The one-two punch of the global financial crisis, plus the OECD vendetta, has led to unprecedented economic challenges for offshore centers.

Some – Gibraltar, Hong Kong and Singapore, for instance – are still in pretty good shape financially. Others (particularly in the Caribbean) are having a hard time paying their bills. The British press refers to the Cayman Islands as "bankrupt."

Could offshore jurisdictions facing the worst challenges actually declare bankruptcy?

Not if they can reduce spending, or qualify for additional loans. A condition of additional lending, however, may be to impose direct taxes, such as personal and corporate income taxes.

Read the rest of the story here

U.S tax police now go after Asia

As resources become more scarce to support the disastrous U.S. economic policies the IRS is going more and more global to track down those darn tax cheats. First it was European and Caribbean tax havens and now it is Singapore and Hong Kong they are after. What a joke,the U.S. government waste more in one day than they expect to collect from these so called evaders in ten years. Go here to see the IRS most wanted list of tax evaders.

Excerpts from Reuters:

Washington inflicted a tough lesson last year on Switzerland by forcing the world's biggest offshore banking center to lift its treasured bank secrecy and slapping a $780-million penalty on UBS.

The Department of Justice is now going after other offshore centers like Singapore, which have attracted undeclared money that left Switzerland, and has opened a criminal inquiry into Asian clients of Britain's HSBC Holdings Plc, Europe's No. 1 bank..

Banks in Singapore and Hong Kong hold estimated offshore wealth worth $700 billion against Switzerland's $2 trillion, according to the 2010 Boston Consulting Group Wealth Report.

"There are going to be more such cases," a U.S. Internal Revenue Service source told Reuters. "There's a lot of talk about money being moved from Switzerland into Asia."

U.S. authorities have made it clear they are not looking at just one bank or one jurisdiction, said Edmund Leow, principal at Baker & McKenzie, Wong & Leow in Singapore, adding that Hong Kong and Singapore would be the first Asian financial hubs for the IRS to look into.

GB Crackdown on offshore tax dodgers

The U.S. government is not the only one desperate for tax revenue. In this article from The Times online, we can see Great Britain getting into the act. Even though Great Britain does not tax on world wide income, their revenue office believe there is a lot of offshore cash that was made in the UK, stashed offshore and not reported.

Excerpts from Times Online;

The Government has given offshore tax dodgers one last chance to come clean before it implements a new, tougher penalty regime with onerous fines for those who are caught out.

Savers and investors who hide money in secretive tax havens face penalties of up to 200 per cent of the tax owed if they are discovered. Accountants say that the move, which will not be introduced until 2011, is a last-ditch attempt by HM Revenue & Customs to flush out funds hidden offshore.

Some are even encouraging offshore savers to move their money to Liechtenstein — where a special deal means that penalties are fixed at a maximum of 10 per cent — while they still can.

The offshore assault forms part of a widespread attack on tax avoidance and illegal tax evasion announced in the Budget. The Chancellor is also targeting schemes that are being used to circumvent the new 50 per cent super rate of income tax, such as employee benefit trusts and Gift Aid plans. Business owners are also on the hit list in a crackdown on aggressive avoidance plans.

Under the new regime, penalties for evasion will be doubled if they involve offshore havens that do not exchange tax information with Britain. A definitive list has yet to be published, but it could include countries such as Panama and Liberia.

Taxing the rich is causing exodus in Brittain

Hat tip to Tomas for this one.

Excerpts from UK Telegraph:

The British Virgin Islands, a popular tax haven in the Caribbean, has seen an 18 per cent rise on a year ago.

Those who are leaving what they see as the mainland’s punitive tax rates include highly paid bankers and hedge fund mangers along with entrepreneurs running luxury travel companies, healthcare, property firms and call centres.

“It’s not just the 50 per cent rate — it’s National Insurance, the treatment of pensions ... everything. It’s just a ridiculous amount of taxation.”

A new marketing brochure published by the island’s authorities promises “in Jersey, keep more of what you earn” based on corporation tax at 10 per cent and income tax at 20 per cent. There is no inheritance tax or capital gains tax and property taxes are also low.

Jersey Finance, an agency set up to attract financial talent to the island, has held a series of private dinners in London to persuade new residents to move to the island.

Geoff Cook, the agency’s chief executive, said: “The 50 per cent tax rate does seem to have been the tipping point for many people.”

The influx has also proved popular with estate agents on Jersey. James de la Cloche, director of Edge, a property consultancy, said: “We love Gordon [Brown] and Alistair [Darling] over here — we rather hope they get another term.”

Read the whole story here

Tax (in)Justice Network says Panama is "a grubby little tax haven"

Several U.S. advocacy groups are climbing on the band wagon to try force Panama to become more compliant in their tax information exchange.  The have names such as "Tax Justice Network" and "Public Citizen", names which would indicate they are advocates for freedom. What they really have in mind is enslavement of the populace by eliminating any option one might have to protect his/her wealth from the greedy politicians and tort lawyers who support them.  They are really working for the state under the guise of working in your best interest!

The Tax Justice Network is an organization that is closely aligned with the anti-tax haven ideals of the OECD except they see the OECD as hypocritical due the the fact that several member countries are the largest tax havens in the world with the U.S. and Great Britain leading the way. They want tax justice for the state, certainly not for the individual. They don't like tax competition and firmly believe that taxes should be universal and high. Here is how they see themselves: The Tax Justice Network (TJN) is an international, non-aligned coalition of researchers and activists with a shared concern about the harmful impacts of tax avoidance, tax competition and tax havens. www.taxjustice.net

Now they have focus on Panama because of the possible trade agreement with the U.S..

Here is an excerpt from their story; “While some offshore jurisdictions around the world have said they will no longer use bank secrecy to help tax cheats, Panama apparently still refuses to negotiate a tax information exchange agreement with the United States. We should not reward Panama with a free trade agreement unless and until it agrees to disclose information on U.S. tax dodgers,” said Sen. Levin."

Public Citizen has also come out with an attack on Panama with this supposed report titled "Panama FTA Would Undermine  U.S. Efforts to Stop Offshore Tax-Haven Abuse and Regulate Risky Financial Conduct " You can download this PDF report here.