Panama: Tax Haven for a Week

Last week, Colombia’s recent issues with Panama have been temporarily resolved after Colombia took Panama off its list of tax havens, leading both countries to agree on an information-sharing agreement. When Panama failed to meet the deadline for the original agreement two weeks ago, Colombia placed Panama on its tax haven list, causing Panama to raise retaliatory threats. The sudden crisis in the countries’ economic relations was caused by the Colombian government’s recent efforts to raise more revenue by monitoring tax evaders with bank accounts in Panama. This new information-sharing agreement is valid until September 2015, and is the base for a future double taxation treaty which will conform to OECD (Organization for Economic Cooperation and Development) standards. Source: colombiareports.co

The Colombian president Juan Manuel Santos—known for his efforts in improving diplomatic relations with Venezuela and Ecuador, and for advancing the peace processes with FARC—has been called out for this sudden crisis in Colombo-Panamanian relations. However, his government’s efforts to obtain revenue from tax evaders are not

unfounded. Last year alone, Colombian investments in Panama added up to $3.2 billion and represented 42% of all Colombian foreign investment. Conversely, taxing foreign evaders could raise $10 billion, a little under half of what the recent tax reform bill seeks to raise in the next four years of Santos’ administration.

This is not the first time Panama has been accused of poor transparency, and it has only recently been considered a more cooperative tax haven, under OECD and FATF (Financial Action Task Force) standards. For years, the Latin American press has denounced Panama as a money laundering and tax evasion destination. Furthermore, Panama’s reluctance to disclose information on tax jurisdiction to the Colombian government is a red flag that signals it as a potential tax haven. Given the Colombia and Panama’s historically positive relations, this crisis is a clear alert for Panama to change its financial legislation.

In further efforts to raise revenue from tax evasion, Colombia has also signed tax information agreements with Barbados, the UAE and Monaco, officially taking them off its tax haven list, as well. Future double taxation treaties with these countries, especially with Panama, are also in discussion.