Panama May Sign Tax Accords to Avoid Sanctions, Official Says
Monday, September 07 2009 @ 05:39 PM UTC
Contributed by: Don Winner
Editor's Comment: Interesting strategy. If Panama signs bilateral information sharing agreements with several nations, then they can point to those as a demonstration of their willingness to cooperate internationally, and to keep Panama off of any kind of "black list" to avoid OECD sanctions. Of course, the greatest majority of the money flowing through Panamanian banks doesn't come from places like Italy, but rather from the United States and other countries that tax the income of their citizens internationally. In an article published today Panama indicated Italy is one of the countries with which they intend to negotiate a bilateral agreement to "prevent dual taxation."
Information Exchange Helps Others, Not Panama: The government of Panama has been further refining their response. They have no intention of signing any kind of an agreement calling for an "exchange of information" because quite frankly, Panama does not tax their companies or citizens internationally. If you are a Panamanian citizen and you earn $100,000 dollars in income in the United States, Panama could not care less. If you return to Panama and make the same money then they want to tax you. The United States, on the other hand, considers it their right to tax their citizens on worldwide income. If a US citizen makes $100,000 in Panama, Uncle Sam wants to know. They also want to know about your businesses, bank accounts, property holdings, etc. So in the end there really isn't any kind of an exchange of information, but rather all of the information is only going in one direction - from Panama to the United States. And, signing an agreement like that is simply not in Panama's best interests.
What Is In Panama's Best Interests: In the near term, Panama has to avoid OECD sanctions. And, this strategy they are now implementing is designed to do exactly that. I'm sure Panama would be happy to negotiate a treaty with the United States to avoid dual taxation - meaning in other words an agreement designed to ensure the same income is not taxed twice, which Panama considers to be important and fair. But, the United States does not want that - rather they want to be able to rummage around in all of Panama's official data bases to sniff out people and companies that are avoiding or evading US taxes. The "conflict" as it were really boils down to a difference in opinion as to how these issues should be handled.
A Zero Sum Game: In the end of the day for Panama it will come down to a zero-sum game; as long as Panama continues to make more money on international banking services than they have to pay in any kind of potential sanctions, then the chances of Panama folding over are slim. There's the argument for "saving face" internationally. Panama as a nation will be seen as a kind of rogue or outsider if sanctions are applied. However, some will see that as "standing up to the man" or whatever, and the net effect might be even more money pouring into Panama.
The Ability To Fight Back: And don't forget, Panama as an Ace in the deck - if the United States or the OECD or anyone else hits Panama with sanctions, then Panama can always simply recoup the cost of those sanctions with higher fees for passing through the Panama Canal. What? That ship is going to Miami? OK, then you'll have to pay an additional $54,359 to the special "OECD Sanction Offset Fund" for your boat to go through the canal. Not fair? Then here's the email address for the OECD - go complain to them. Economic sanctions work best against the very weak and those who have no recourse to fight back. And the United States or anyone else couldn't really complain, because what's good for the goose is good for the gander, right? So, only the United States and the OECD can use economic sanctions to force other nations to do what they demand? If they decide to play hardball with Panama, don't be surprised if it comes to a head. Expect to see more on these issues rather than less in the future. This will be an interesting game of brinkmanship to watch as it unfolds. I told the US Ambassador to Panama, Barbara Stephenson, back in May that Panama would not be rolling over on this issue any time soon. She didn't believe me. Oh well, I tried.