Update on the Panama USA Tax Treaty - Dec. 1, 2010

It appears that the new tax treaty requires Panama to have their legislature endorse it before it can go into effect. We do not know when this is going to be but they have a year to do so. The US Treasury Secretary signed the treaty on Nov. 30th. If the legislature modifies it then it would need to go back to the USA for endorsement as well. They both seem to be aware of this. I will quote the following section of the treaty:

ARTICLE 11
ENTRY INTO FORCE

The Parties shall notify to reciprocate when they have completed their internal procedures necessary for entry into force of this Agreement. This Agreement shall enter into force on the later of the dates of such notifications. Once the Agreement enters into force, it will have effect for applications to be made on or after the date of enactment, with respect to matters pertaining to fiscal years beginning on or after three years prior to signing this Agreement.

The last few words of this treaty are troubling.

"Once the Agreement enters into force, it will have effect for applications to be made on or after the date of enactment, with respect to matters pertaining to fiscal years beginning on or after three years prior to signing this Agreement."

This is a retroactive contract which is normally against the constitution of a nation. It allows information requests to be made going back three years before the treaty signing date. Whoa. Can you believe they did this?

Here is a quote we came across on Panama Guide:

http://www.panama-guide.com/article.php/20101129110623149

"the lawyer Eduardo Morgan Jr. said Panama would have to limit the tax information to be sent to the United States to only those US nationals who "actually reside in the United States." Otherwise, he warned, it would violate Article 17 of the Constitution and with it, 'Panama lost much more than they could win"

Here is a machine translation of Article 17 of the Panama Constitution:

ARTICLE 17. The authorities of the Republic are instituted to protect in their life, honour and goods to the nationals anywhere are and the foreigners who are under their jurisdiction; to assure the individual and social effectiveness of the rights and duties, and to fulfill and to make fulfill the Constitution and the Law. The rights and guarantees that this Constitution consecrates, must be considered like nonexcluding minimums and of which they affect the rights fundamental and the dignity of the person.

The key words are the constitution applies to foreigners under their jurisdiction. This would mean a resident of Panama banking in Panama with a Panama Corporation or Foundation could not be subject to this "treaty" just because they are American as well. Now an American not being a Panama Resident would not be construed to be under protection of Panama Constitution. The three year look back period would be unconstitutional in our opinion and thus would not be applicable to a resident of Panama. The USA may lose on these points and thus those holding Panama Residencies would be exempt from this treaty or at least the retroactive aspects of it. We need to watch what the legislature does. The situation is far from encouraging. If it does not pass this time, there may be a second and third attempt down the road. The mindset of the existing Panama government is troubling to say the least.

The economic impact on Panama will be hard hitting if they go through with these information sharing changes and open up the S.A. Corporations no matter what country the owner is from. Panama recently had 450,000 corporations on file. A law firm is required to pay $300 to renew a corporation. This comes to $135,000,000 on annual renewals. Then comes the work provided to the law firms. This is a lot of money and jobs they are saying goodbye to. We can safely assume that many people will close their bank accounts as well. So jobs will be lost with the law firms and with the banks. More lost jobs is not good for Panama. They are banking heavily on the new Canal. The old canal provides like 8000 or 9000 jobs. So the new canal with add a few thousand jobs at most since it will be more computerized than the old canal which dates back to 1913. I am pessimistic on Panama tourism being expanded. They have a short supply of tourist attractions. Our opinion is this was financially an error.

Our opinion is to pull out of Panama. The existing administration is opposed to the practices of the old Panama when it comes to banking and corporate secrecy. It is time to move on.

Please do not shoot the messenger we are just updating you on the changes not causing them.

We suggest you look at Hong Kong with government bank insurance and anonymous corporations.

Hong Kong Bank Accounts and Hong Kong Corporations

Belize is another option:

Bank Accounts in Belize

And let us not overlook Ecuador. Ecuador recently offered the founder of Wikileaks a residency with no conditions so he could continue exposing the USA documents which is a major embarrassment to the USA. Ecuador has no Mutual Legal Assistance Treaties with the USA and no Tax Information Exchange Agreements. It is most unlikely that Ecuador will ever sign any such treaty.

http://www.panamalaw.org