Thursday, December 02, 2010

U.S. signs curious new info deal with Panama

From the U.S. Treasury:
"In a ceremony at the U.S. Department of the Treasury today, Treasury Secretary Tim Geithner and Panamanian Vice President and Minister of Foreign Affairs Juan Carlos Varela signed a new tax information exchange agreement (TIEA) between the United States and Panama."
This is being presented as a good thing. But a correspondent to TJN (hat tip: anon), who nosed around the TIEA itself, sent us this:
"An interesting aspect of the US-Panama TIEA is that Panama is not obliged to provide information if the US could not provide such information in comparable circumstances. It is well known that the US has little ability to determine the beneficial owners of corporations organized in many US states, notably Delaware, Nevada, and Wyoming (Wyoming, like Panama, allows bearer shares).

The TIEA requires Panama to adopt legislation banning bearer shares and giving the Panama government the power to get bank and fiduciary information. But there is no comparable obligation on the US. So Panama will have an easy “out” if the US were to ask for information on beneficial owners."
Looks like another smokescreen. And our correspondent also notes something that we have long been complaining about:
Of course, the TIEA, like the Swiss version, basically requires only exchange on request, with the requesting party having to provide so much information that few requests can be made (to quote myself, “you have to know what you are asking for before you can ask”).
This OECD-styled "on request" arrangement, by appearing to deliver transparency while probably delivering very little or no transparency, will probably do more harm than good.

2 Comments:

Anonymous My Panama Law Blog said...

Why Tax Information Exchange Agreements Are 'Toothless'
Despite the ominous messages being communicated to the public, taxpayers have little to fear from the tax information exchange agreements (TIEAs) to which most tax havens have rushed to commit.

6:14 pm  
Anonymous Todd Tucker said...

Good analysis, but I think you overstate the obligation Panama undertook on bearer shares.

The Joint Declaration states that the parties “intend” to enact the TIEA after “the enactment of any legislation by Panama that is necessary under its domestic laws in order for Panama to comply fully with the terms of the Agreement… The United States understands that, with respect to the necessary legislation referred to [above], Panama intends to enact legislation requiring the identification of the owners of bearer shares.”

There is wiggle room for the TIEA to enter into effect before Panama makes the change to its domestic law. First, the Joint Declaration is not a binding document. Second, the language sequencing the TIEA after any changes in Panamanian law is only aspirational. Third, Panama only commits to make legal changes “necessary under its [own] domestic laws” to comply with the TIEA. But it’s not clear that the changes to bearer shares would be necessary under the TIEA itself nor Panama’s domestic laws. Finally, the Joint Declaration only takes note of an intention on the part of Panama, rather than making the sequencing a binding obligation.

Also note: "ARTICLE 6: POSSIBILITY OF DECLINING A REQUEST 1. The competent authority of the requested Party may decline to assist: ... (c) where the disclosure of the information requested would be contrary to the public policy of the requested Party."

This is such a broad loophole that Panama, which has a policy of offering tax and regulatory arbitrage opportunities to corporations and private individuals, could invoke this as a reason not to cooperate with the IRS. (Yes, I know that similar language exists in other TIEAs, but it's likely to be far worse in the case of Panama given its aggressive pro-tax haven public policy framework.)

Also, the agreement is limited to CRIMINAL tax matters, so won't help with the non-criminal tax avoidance that the White House and advocacy groups have identified as an equally big if not bigger problem. Past TIEAs have not had this exclusion, to my knowledge.

Finally, the TIEA cannot be separated from the negotiations on the "Free trade agreement."

Moreover, the Obama administration has still not agreed to change the problems with the FTA itself that make fighting tax haven abuses harder.

The U.S.-Panama FTA’s investment provisions constrain restrictions on transfers to and from the countries that provide financial secrecy like Panama. But restrictions on transfers are one of the most important tools policymakers have in fighting financial crimes and wrongdoing.

The FTA gives the tax haven promoting government of Panama and the 400,000 corporations registered there new rights to challenge U.S. anti-tax haven policies for cash compensation outside of the U.S. judicial system. Under trade and investment agreements, governments have paid out billions of dollars in compensation for the privilege of enacting public interest rules.

8:52 am  

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