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Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Panama 2016

Phase 2: Implementation of the Standard in Practice

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Published on November 04, 2016

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This report contains the 2014 “Phase 2: Implementation of the Standards in Practice” Global Forum review of Panama.

The Global Forum on Transparency and Exchange of Information for Tax Purposes is the multilateral framework within which work in the area of tax transparency and exchange of information is carried out by over 130 jurisdictions which participate in the work of the Global Forum on an equal footing.

The Global Forum is charged with in-depth monitoring and peer review of the implementation of the standards of transparency and exchange of information for tax purposes. These standards are primarily reflected in the 2002 OECD Model Agreement on Exchange of Information on Tax Matters and its commentary, and in Article 26 of the OECD Model Tax Convention on Income and on Capital and its commentary as updated in 2004, which has been incorporated in the UN Model Tax Convention.

The standards provide for international exchange on request of foreseeably relevant information for the administration or enforcement of the domestic tax laws of a requesting party. “Fishing expeditions” are not authorised, but all foreseeably relevant information must be provided, including bank information and information held by fiduciaries, regardless of the existence of a domestic tax interest or the application of a dual criminality standard.

All members of the Global Forum, as well as jurisdictions identified by the Global Forum as relevant to its work, are being reviewed. This process is undertaken in two phases. Phase 1 reviews assess the quality of a jurisdiction’s legal and regulatory framework for the exchange of information, while Phase 2 reviews look at the practical implementation of that framework. Some Global Forum members are undergoing combined – Phase 1 plus Phase 2 – reviews. The ultimate goal is to help jurisdictions to effectively implement the international standards of transparency and exchange of information for tax purposes.

Key Findings

The Phase 2 review rates Panama overall as non-compliant with the international standard. The Phase 2 review shows that Panama experienced serious difficulties in obtaining and exchanging information for tax purposes during the three-year review period from 1 July 2012 – 30 June 2015. The Report points at a variety of reasons for this, including issues related to a disproportionate number of deemed inactive companies in Panama, the absence of requirements for entities operating outside Panama to keep accounting records, as well as deficiencies in the use of Panama’s powers to obtain and collect information. This resulted in the Panamanian Competent Authority not always obtaining and exchanging all of  information requested by its treaty partners. Since the review was completed, Panama has taken a number of important steps to address the recommendations made, including amending its domestic legislation to enhance the strike off of deemed inactive companies, introduce requirements to keep accounting information for all relevant entities and enhance its access powers and enforcement provisions. A reorganisation of the Panama’s Competent Authority office, processes and procedures has also taken place since the end of the review period, with substantial new resources having been allocated. In addition, on 27 October 2016 Panama has signed the multilateral Convention on Mutual Administrative Assistance in Tax Matters greatly extending its exchange of information network.  For further information on Panama’s exchange of information practices and to read the full report click here.