Panama Tells OECD No on Tax Information Sharing Agreements

Executive Summary – Panama has taken a stand against the OECD. They are protesting the tax information sharing agreements aspects of what the OECD wants them to agree to. They are offering to enter into double taxation agreements without any Tax Information Sharing Provisions. Panama is saying it is not a tax haven since it taxes income generated inside of Panama. No comment on this. It gets better. Panama has been threatening to use its law of retaliation against countries that discriminate against Panama based on it being a tax haven. They specifically mentioned these nations: Spain, Mexico, Argentina, Peru, Ecuador and Venezuela. Panama also said it will file complaints with the World Trade Organization against nations that place Panama on “phony” blacklists and also raise the issue at the IMF. On this I will comment. In my opinion protests to the World Trade Organization and the IMF will fall on deaf ears and be ignored.

Executive Analysis – Panama is a nation of 3.2 million people. It has the world’s second largest duty free zone in Colon. It has the Panama Canal. It seems to me that they may have bit off more than what they can chew, just my opinion mind you.

What possible significance would their sanctions have to large nations like Mexico, Argentina etc. Not much there unless they started to not let these nations use the Panama Canal, which is not something that has been mentioned to the best of my knowledge. Such a posture would be dangerous since when the USA handed over the Canal to Panama the treaty covering this (according to my sources) allows for the USA to take the Canal back if the efficiency diminishes or if the Canal is faced with some sort of threat in the opinion of the USA.

I would think if Panama tried to play the Canal card the USA would become big time upset with them and no telling where this would go. The USA got big time upset with Panama once before and the net result was an invasion and overthrow of Noriega. I think we have to wait and watch closely. Obama is very much in favor of shutting down tax havens through the OECD. If this failed then he would probably resort to other measures, which we could speculate about forever but again just be vigilant and watch carefully to see how this progresses.

Possible Outcomes – Of course one could say that Panama is leading the charge against the OECD and that the other tax havens like Hong Kong and Singapore will follow their lead and not sign any Tax Information Exchange Agreements. This could happen but I am not optimistic. I think Switzerland, Austria, Hong Kong, Singapore etc will not want to see Panama get their clients since they are signing these new treaties. The way for them to stop this is to go for sanctions against Panama.

Panama is a USD economy and this is what drives their banking systems. If the USA gets angry over this they could make life difficult for Panama whose banks are dependent on the USA based correspondent banks. Wires could take weeks as they get investigated and challenged asking people to show source of funds, ID etc. The correspondent banks can be told officially or unofficially to stop dealing with Panama banks. If no other country seems to mind then Panama can get away with this and then so will other nations follow their lead. If the other nations do mind, the sanctions they could bring down on a country like Panama could impact the country worse than tax treaties. We do not know what is going to happen but we are not optimistic about a small country like Panama flexing its muscle especially when the other side contains the G-20 nations including the US and UK. We do tip our hat to Panama and applaud their standing up to the OECD for now anyway. Lets see how things go in the coming weeks.

Possible Problems and Complications – This is all opinion and conjecture and is designed to educate the readers about possible outcomes. No one here is saying what will happen, we do not know. We do think these are scenarios worthy of consideration if you have a vested interest in the outcome.

Possibility of Sanctions - If the G-20 nations get angry with any nation failing to cooperate with them, they can impose sanctions. Sanctions can include cancellation of treaties like free trade agreements. This can damage an economy of any nation by making it less competitive. The OECD is already talking of sanctions aimed at those nations who have agreed to cooperate with the treaties for Tax Information Sharing but are dragging their feet with actual treaty signing. Now comes a country (Panama) that says it will not sign the agreements for Tax Information Sharing at all. Makes one wonder what the other nations will do?

If they ignore this then many other nations can follow suit and do the same. Then all their OECD efforts fall apart and become worthless. To us this is a desirable outcome, but perhaps not realistic to expect. There will be sanctions in our opinion and these sanctions will be punishing enough to make an example of any nation standing up to them. If a bunch of nations stood up against them together then it might work, but not a single lone wolf nation. If the sanctions focus on the correspondent banks of any nation standing up to the OECD then one could have funds in the banks in said country with no way of getting them out. Checks and wire transfers would not be working. The VISA and MasterCard operations are ultimately owned in the USA and this is another vulnerability that could be exploited cutting off credit cards and ATM cards from any nation’s banks standing up to the OECD.

Vigilance Called For Now - The situation needs to be watched closely in our opinion. Be vigilant to see if anything is happening that can negatively impact ability to move funds internationally. We are not saying this is going to happen at all. We are saying you should be vigilant in watching since any sort of retaliation by the OECD nations could be possible. Vigilance is always a good idea. Go to google and have them send you news alerts for key words you input. Things like the nation in question and tax treaty, sanctions, OECD etc.

Also get news alerts for the name of any bank you are using. Nothing like early warning. They will send these news alerts to any email address and all for free.

http://www.google.com/alerts

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