Interesting Treaty News from Panama

O.K. amigos -- you knew it would happen, what with all the leftist welfare state tax collectors and the OECD clamoring for blacklists and boycotts aimed at one of the last nations with enough political courage and guts to stand up for financial privacy and banking secrecy -- our friends in Panama.

Yes, Panamanian President Ricardo Martinelli (left) and his Mexican counterpart, Felipe Calderón (far left) signed a "tax information exchange" treaty a few weeks ago at the Summit of Latin American and Caribbean Unity -- but this treaty is NOT what you may think of when you hear the dreaded "tax information exchange."

Article 26 Again

That phrase has taken on the meaning generally assigned to it by the loud, anti-tax haven advocates of Article 26 of the OECD model tax treaty.

Of course what these radicals really want is automatic tax and financial information exchange, and they are still working feverishly for that goal. (France has even adopted its own arbitrary blacklist of tax havens and imposed a huge tax on French transactions with the named places).

 
But generally "tax information exchange" is understood to mean negotiating and signing bilateral treaties between nations providing a specific method to be followed when one nation formally asks another nation for financial information about one of their citizens. Such requests are governed in each case by the specific terms of the bilateral treaty.

Bank Secrecy Takes a Hit

Some nations with (until now) strict banking secrecy, such as Switzerland and Austria, have publicly insisted that such treaty requests must name a specific person and a specific bank or other financial account, providing at least prima face evidence of a possible violation of the requesting nation's tax laws. No "fishing expeditions" allowed, they insist.

Panama's La Prensa report that the two leaders described the new treaty as "an agreement to avoid double taxation and to prevent tax evasion on income tax." In a political pas de deux, Mexican President Calderón said that with the signing of the agreement Mexico can promote Panama internationally as a country that meets OECD and international standards on tax and fiscal matters.

Panama's Martinelli added that the agreement was part of several actions his government is taking "to promote better transparency and competitiveness."

Devil in the Details

I have not seen the specific treaty terms, but our Panamanian sources say the agreement embodies Martinelli's strategy to avoid Panama being classified as a rogue nation or uncooperative tax haven by negotiating and signing bilateral information sharing double taxation agreements with like-minded nations.

These observers say that while the United States government wants to force Panama to "open it's books" in what the U.S. calls "information sharing," in fact the U.S. doesn't have any information Panama wants.

Territorial Taxes

Panama has a sensible "territorial tax system" which does not tax earnings outside its borders, so it does not need to know what Panamanians or foreign nationals earn elsewhere. Thus all information would flow one way, from Panama to the United States, negating the country's financial privacy laws.

Panama is one of many sovereign nations that share the view that the OECD and the United States have no right to twist their arms or force them to provide information on domestic corporations, trusts, family foundations and bank accounts, even if they are held by foreign nationals.

Traditional and Limited

What Panama and Mexico signed, (and what Panama is negotiating with other countries), are traditional bilateral agreements to avoid "double taxation" on an individual's offshore income -- and that does not include tax information exchange beyond what is required to avoid that double taxation.

Meanwhile Panama can and does point to and proclaim that the country is being responsible internationally by signing such traditionaly limited treaties.

 
SPECIAL PANAMA NOTICE

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Comments

[Bob]

Thanks for the article Bob. Can you bring it home for us?? Were there any REAL changes that would effect the banking secrecy laws of Panama?

Thank you, Bob

BOB BAUMAN REPLIES:
A central part of the Panama's long tax haven tradition has been attractive statutory guarantees of financial privacy and confidentiality. These have not changed.

Violators can suffer civil and criminal penalties for disclosure. Unless court ordered there is no automatic requirement to reveal beneficial trust or corporate ownership to anyone and no required audit reports or financial statements.

However, Panama has in place a strong anti-money laundering law that has been approved by the OECD's Financial Action Task FOrce (FATF) and it is enforced.