USA-Panama tax treaty now in force with retrospective effect

21 April 2011

The USA-Panama tax information exchange agreement signed in November last year has come into force.

The agreement authorises disclosure of all financial transactions conducted on or after 30 November 2007, which has proved a controversial issue in Panamanian internal politics.

Panama's National Assembly initially approved the treaty on 13 April, having been assured by vice president Juan Carlos Varela that ratification would be quickly followed by the conclusion of a free trade agreement between the two countries. The Latin American country's economy has been hard pressed by American tariffs on Panamanian food exports, and by restrictions on US investment in the country.Varela and the president Ricardo Martinelli are now preparing a visit to the USA later this month to begin pressing Congress to ratify the trade agreement.

The opposition Democratic Revolutionary Party lawmakers argued against the tax treaty, partly because of its retroactive effect. The DRP also said the US administration "has wanted for years to put an end to Panama's financial centre so as not to compete with Florida."

Not everyone believes that the US tax treaty will be beneficial to Panama in the long term. An article in the Economist last December noted that Panama does not tax transactions outside its territory so that the supposedly bilateral provisions of the agreement are no use to it. On the other hand, American taxpayers are thought to hold between 25 per cent and 40 per cent of all foreign bank accounts in Panama.

"The deal represents a clear surrender to American demands", said the magazine in an editorial. Not only are Americans expected to close many accounts in the country, but other foreign investors frightened by the precedent will also withdraw capital.

• The Panama government has also been negotiating a tax information exchange agreement with France. But those talks appear to have broken down, after the French government apparently introduced new demands late in the process.

 

Sources

 

US Treasury Department

Prensa (14 April)

Prensa (14 April)

Prensa (13 April)

Economist

 


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