• The Tax Information Exchange Agreement between Panama and the United States
  • February 25, 2011 | Author: Hernando A. Chiari O.
  • Law Firm: López, Morales y Chiari (Maat Asesores) - Panamá Office
  • The Tax Information Exchange Agreement

    The Republic of Panama, in an effort to ensure that the Organization for Economic Cooperation and Development (OECD) will withdraw her from its "tax haven" blacklist for which she qualifies, as well as to improve bilateral relations with United States of America, signed on November 30 a Tax Information Exchange Agreement or TIEA.

    As its name indicates, the agreement is about the exchange of information, as required by Panama or the United States, concerning their taxes to be able to identify, assess or collect taxes that may be due in no matter the nationality of the tax payer.

    Under the TIEA signed by both countries, the taxes that will be covered by the agreement of information are all American federal taxes  and all Panamanian national taxes and those of a similar nature arising after the agreement. The state taxes, municipal taxes or taxes of other nature than those described above, are not covered by this TIEA.

    This TIEA states that the information may be used to address tax matters or criminal matters (which we assume will be in relation to tax issues, but this limitation is not so clear in the agreement) and the scope of information that can be requested is very large: Testimonies , books copies, papers, records, tangible property, inspections and so forth.

    Furthermore, this information may be requested from the banks, financial institutions and any other person, including directors, officers, trustees, agents, attorneys, beneficiaries, funders and others who may possess the required information.

    Finally, the TIEA states the circumstances under which a State may refuse to grant the requested information, the procedure for requesting the information, management costs and other elements required to formalize the TIEA.


    Panama already has a policy of "Know Your Customer"

    A first reflection on the issue is that the TIEA does not involve adding more controls to the existing ones in the Republic of Panama, nor does this involves the creation of new taxes in the Republic of Panama. What the TIEA produces is a mechanism by which it is possible to inhibit in a legal way the bank secrecy and the right to professional confidentiality that prevails today in the Republic of Panama.

    Currently, however, Panama's financial system, financial actors and in general all those involved in corporate and financial work, are required to have policies of "know your customer" and to know the source of funds, target funds and other relevant information that can identify those who are involved in drug trafficking and the like.

    The novelty is that now the corporate veil may be lifted and confidential information may be required in the event the United States asks for information related to taxes or taxation crimes.

    Panama wants to be an international business hub

    A second reflection is that the Republic of Panama has decided to promote itself as a highly competitive financial center, and as a multiple services hub, as a strategy for economic and human development. This new strategy does avoid to be the "laundry maid" of the financial world, and prevents that it is used to help those who wish to structure their operations outside the laws of different states.

    Therefore, we believe that this new TIEA signed with the United States of America as well as those signied with other countries, and the steps being taken by the Republic of Panama to compete in the sphere of legitimate international business is positive, has all the value of large and important decisions and should send a clear signal to the world that Panama is working to become and remain a Multimodal International Hub, highly competitive and efficient.