Panama and Mexico Near Double Taxation Agreement

Panama will soon sign a double taxation agreement with Mexico, the first in a planned series of bilateral agreements, as Panama seeks to move off the “gray list” of fiscal paradises, otherwise knows as tax havens.

The gray listing Organization for Economic Cooperation and Development’s goal is banking transparency through taxation information exchange which is not the same as a double taxation agreement.

Double taxation agreements are designed to protect against the risk of an individual or a corporate entity being taxed twice where the same income is taxable in two states.

Under a Taxation Information Exchange Agreement (TIAE), on the other hand, territories agree to cooperate in tax matters through exchange of information.  Transparency based on automatic exchange could induce capital flight from Panama banks.

Panama’s double taxation agreement does include an information sharing clause, according to Frank De Lima, Panamanian Vice Minister of Economy, but Panama will maintain its stricter probable cause requirements.

Panama must sign at least 12 agreements to be removed from the OECD list.  De Lima has also reportedly contacted France, Germany, Australia, Japan, Switzerland, Norway, Iceland, Lichtenstein and England and received agreement requests from Belgium, Luxembourg and Poland.

By year’s end, Panama is expected to sign similar agreements with Spain, Italy, and the Netherlands, countries with which President Martinelli says Panama has strong commercial and diplomatic relationships.

Incidentally, Grupo Unidos por el Canal, a consortium of companies from Spain, Italy and the Netherlands won the $3.12 billion contract to build new locks for the Panama Canal.

Better not to be taxed twice on $3.12 billion.