Panama to Sign Tax Agreement With U.S. to get Free Trade Deal

[OffshorePrivacy]

Panama chooses Free Trade Over Banking Secrecy

Panama and the U.S. will sign an agreement to exchange tax information this month, as the Central American nation seeks to clear the way for lawmakers in Washington to approve a free-trade pact.

The tax accord has been concluded and will be signed by Treasury Secretary Timothy F. Geithner on Nov. 30, Roberto Henriquez, Panama’s minister of trade and industry, said today. With that pact secured, the U.S. Congress should approve the stalled trade deal, he said.

“The Panama deal is ready, it’s easy and it’s good for both countries,” Henriquez said in an interview at Bloomberg’s office in Washington. By passing the accord, “the U.S. will send the signal that it is serious about integration.”

Lawmakers such as Senator Carl Levin, a Michigan Democrat, have said Panama would need to sign a tax-exchange deal before they would consider the trade agreement, which was completed in 2007 and has been ratified by Panama’s legislature. President Barack Obama hasn’t submitted the trade agreement to Congress for approval.

The Organization for Economic Cooperation and Development placed Panama on a list of nations that must share tax data or face sanctions as Group of 20 nations crack down on banking secrecy. Tax-information exchange agreements, which let officials request details about citizens’ bank accounts in another nation, are needed to ensure that taxpayers have no place to hide their income and assets, according to a report by the organization on Nov. 10.

‘Serious Deficiencies’

A review published in September by the international organization found Panama had “potentially serious deficiencies” in making banks and companies reveal tax information. Panama is seeking to change its laws to meet the group’s requirements, Finance Vice Minister Frank De Lima told reporters in Panama City last month.

Panama has already reached 13 separate taxation accords with other nations, Henriquez said today. By signing those deals and the one with the U.S., “we’re going to get the certification of the world” that Panama’s banks are trustworthy, he said.

Sandra Salstrom, a spokeswoman for the U.S. Treasury Department, had no immediate comment.

U.S. manufactures such as Peoria, Illinois-based Caterpillar Inc. say the trade agreement will boost exports and provide an inroad for American companies to supply machinery for the $5.25 billion expansion of the Panama Canal.

Panamanian President Ricardo Martinelli has pledged to spend $20 billion during the next four years to build ports, expand its main airports and lure international companies to the Central American nation.

‘Easiest Deal’

Panama, whose economy is anchored by the Panama Canal, has primarily a service-based economy and is one of the few nations that run a trade deficit with the U.S. American companies shipped $4.3 billion in goods and agriculture products to Panama last year and imported $302 million. By comparison, the U.S. exports more to China in three weeks than it does to Panama in a year.

Obama has concentrated on winning congressional approval of a trade deal with South Korea. His efforts to rework that deal to resolve complaints about beef and automobiles failed at a summit in Seoul last week.

“If they are looking for the easiest” deal, “Panama is ready,” Henriquez said.

[OffshorePrivacy]

When information of this gets out expect most Americans with accounts in Panama to quickly close them and try to move their funds elsewhere -- if they can find a bank to accept them.

This outflow may lead to instability with some of Panama's weaker banks.

Just 2 weeks ago the Sovereign Society held a "Offshore Conference" in Mexico targeting US citizens and touting banking in Panama as still iron clad and with no US tax agreements. I bet they feel silly now

[OffshorePrivacy]

Panama was one of the last remaining hold outs to the US and EU. I am sure the UK, Germany and France would like to strict similar deals. So the question is who will be next to sign a tax agreement with Panama ;-)

[slogold]

Panama has already signed various Double Tax Treaties but none are in effect, so let us wait and see what will happen in reality.