Panama Banking Industry Given 15 days to Open Its Books (07/19/09)
By Aurelia Masterson, http://www.panamalaw.org
Executive Summary – As we have predicting for some two months now Panama has been given a deadline by the OECD to open up its banking records. The deadline was 15 days. This article first appeared in La Prensa Newspaper (Panama Largest Newspaper) on July 19, 2009. A reprint of the article and the link can be found below. We are focusing on the exchange of tax information. The double taxation issues do not concern 99% of you and a double taxation treaty will not benefit 99% of you since you do not move physical goods in and out of Panama. The laws will allow for information sharing amongst 82 countries working in and with the OECD. While requests are supposed to be individualized we can look at the request for information on 52,000 bank accounts recently made by the USA to UBS a Swiss bank. This will give us the true impact of the magnitude of what is to be expected. The 52,000 request was just one request. Since it was before the Swiss actually signed the new treaty with the USA (yes they already signed the new treaty already) it is being fought out in court. If Panama does not comply and satisfy the OECD then it faces sanctions and blacklisting. Blacklisting can cause the loss of correspondent banks. The correspondent banks of the world are all in OECD compliant nations. Without correspondent banks Panama will not be able to send or receive wires. They will also be unable to cash or write checks. Essentially Panama would be isolated from the world economically and they would suffer from such sanctions big time. Go here to read full article from www.prensa.com: http://www.panamalaw.org/images/panama_oecd4_thumb.jpg Capital Flight from the Panama Banks as a Possibility – The new increased transparency in banking and information sharing for tax reasons causing a certain amount of capital to leave the Panama banks is of course something an astute investor needs to consider. How much? You can guess at this just like me. My opinion is that it will be significant. As one of our readers you are by far way more informed than 98% of the people using Panama Banks. In our conservative opinion there is a risk of this capital flight causing some banks to become illiquid and go into liquidation. Combined with the economic downturn in Panama, declining Panama real estate values and incomplete failed real estate projects, job losses and high unemployment, declining tourism evidenced by low hotel occupancy rates and high debt capital flight could have a significant impact on the Panama Banking sector (again our conservative opinion). Please do not shoot the messenger. Non Offshore Tax Havens for Banking – We have been advocating that one should move their banking to a jurisdiction that is not located in a tax haven country. We are using Costa Rica, Ecuador, Mexico, and Guatemala for banking. None of these countries tax any offshore-derived income. All the tax haven jurisdictions can be in trouble from the new tax treaties calling for
information sharing on a suspicion of tax evasion with loose standards for the information request. To avoid any impact on the banks from capital flight we are only using non tax haven jurisdictions where there should be no appreciable capital flight. International Trust Agreement Banking – We are using this approach to banking to keep our clients safe, secure and private. The details can be found here: International Trust Agreement Banking Warning Close Accounts Before the Treaties are in Effect – It is advisable to close your accounts before any tax treaties are entered into. Hong Kong has taken to treating any sudden account closures and/or sudden withdrawals of large amounts of funds as suspicious transactions and are freezing the accounts pending an investigation. What these investigations entail or how long they take will vary from country to country and bank to bank. We cannot say for certain that every country will be doing this but it is a reasonably sound speculative conclusion. We tend to stay conservative in the way we approach these matters and assume the worst so we can have our clients prepared if it does occur. If your account is closed at the bank before the new tax treaties go into effect then the treaty should not cover any previously closed account and the bank records would be safe under the old bank secrecy laws. Retroactive laws are as a rule not allowed in almost every country. Addendum – The below information was added on July 20, 2009. Double Taxation Agreements and Tax Information Sharing Agreements – There seems to be some sites on the Internet that are confused about the new OECD tax treaties. There are basically two areas of concern. The sharing of information regarding suspected tax evasion. On this front the OECD is not flexible and is threatening sanctions and blacklisting. The other front which appears to fall more into the optional category is double taxation agreements. No source I ever read including the OECD and the FATF websites ever said that a double taxation treaty could be signed instead of a tax information sharing agreement. They are after bank transparency for tax information sharing purposes. The OECD website is here: http://www.oecd.org The FATF website is here: http://www.fatf-gafi.org The below article from the UK Guardian, a large UK newspaper and a reputable source, will define the situation for you clearly showing the concern is tax information, not double taxation. The article can be found here: OECD states agree sanction measures for tax havens
BERLIN, June 23 (Reuters) - Ministers from OECD countries agreed on Tuesday on the possibility of imposing sanctions on countries that do not stick to the OECD's tax standards, but left open when such measures should be implemented. The ministers were meeting to pressure nations like Switzerland to step up efforts to combat bank secrecy and to assess progress made by countries on an OECD "grey list" of states needing to improve their tax cooperation standards. A number of European countries maintain strict laws protecting banking privacy, although many of these have been modified in recent months as their governments seek to comply with the standards of the Organization for Economic Cooperation and Development (OECD). German Finance Minister Peer Steinbrueck said he was pleased that a communiqué could be agreed by the 18 countries, including Switzerland, Austria and Luxembourg -- all of which are on the OECD "grey list". "You have here before you extremely happy French and German ministers," he told a joint news conference with French Budget Minister Eric Woerth, with whom he jointly hosted the meeting. "We have taken more steps forward," added Woerth. In the communiqué, the 18 countries said they would promote best practices to protect their tax base against countries and territories that are not implementing the OECD's tax standards. Confusion Clarification - One reason some may be confused is that the double taxation treaties that are being signed now have in them a clause for the sharing of information relation to suspect tax fraud. To give you some idea of where the confusion is coming from see some of these press releases: SINGAPORE -- The Singapore government is proposing changes to its tax laws to meet demands from the U.S. and Europe to clamp down on bank secrecy. "Singapore will seek to amend its domestic laws to allow it to extend further cooperation on information exchange" via double-taxation agreements with other countries. Taken from this webpage: http://online.wsj.com/article/SB124629686791368917.html A protocol amending the double taxation avoidance agreement between the UK and Luxembourg to facilitate the exchange of information for tax purposes between the two governments was signed in London on July 2. This is found on this page: Singapore Plans to Amend Laws Related to Bank Secrecy
A tax information exchange agreement and an agreement for the avoidance of double taxation of individuals, between the governments of the UK and the British Virgin Islands were signed in London on October 29, 2008 and laid before the UK parliament on June 17, 2009 at the same time as TIEA's and treaty amendments with Guernsey and Jersey. This is found on this website: Timms Announces UK Tax Treaty Priorities Questions always welcome.