25th February 2019
Panama, often considered to be one of the world’s premier tax havens, and origin of one of the largest evasion scandals in recent memory, has been making the news once again, but this time, for positive reasons. Recent reports suggest that Panama seems to finally be falling in line with global tax regulations. According to International Investment, a Panama tax law change will make evasion a criminal offence in the destination for the very first time. While it may seem astonishing to some that this was never the case, the fact that compliance will be getting stricter even in far-flung havens like Panama highlights the efficiency of the global movement towards a tougher tax system. The pressure that international bodies have applied to achieve this seems to be paying off. Agencies that wish to place contractors abroad, therefore, should take note of this, and make sure they have thoroughly prepared compliance solutions that can adapt to this ever changing landscape. Failure to do so could result in your business suffering heavy punishments. Here’s the latest:
Panama tax law change
The Panama tax law change was enacted last week, as the country’s parliament passed a bill that will elevate tax evasion to a criminal offence for the first time in the country’s history, in response to growing international pressure. The new law classifies evasion of taxes worth $300,000 or more as a crime and will impose prison sentences of two to five years for criminals. Those found guilty of the offence will also be liable for charges of between two to ten times the total sums evaded. The law will leave the Bahamas as the only jurisdiction left in the region to have not categorised tax evasion as a crime.
Panama has been listed as a permanent fixture on many regulatory blacklists, notably those of the EU and OECD, in the three years since the Panama Papers scandal resulted in millions of financial documents being made public. The law firm that was at the centre of the ensuing scandal, Mossack Fonseca, was dissolved in April 2018. However, in January last year, Panama was removed from the EU’s tax haven blacklist once it formally signed up to the OECD’s automatic exchange of information programme, known as the Common Reporting Standard (CRS), in recognition of the fact that the region is finally taking concerted action to prevent tax fraud.
However, we can’t overlook the fact that this has been said before – in the aftermath of the Panama Papers, we wrote about Panama’s supposed plans to tackle tax fraud. In October 2016, the country became the 105th jurisdiction to sign the Multilateral Convention on Mutual Administrative Assistance in Tax Matters. OECD secretary-general, Angel Gurria, said back then that: “Panama’s decision to sign the Multilateral Convention is a confirmation of its commitment to take the necessary steps to meet international expectations in the fight against tax evasion. It also sends a clear signal that the international community is united in its efforts to stamp out offshore tax evasion.’’ However, the progress after this announcement was slow, to say the least.
Panama Tax Law Change: What does it mean for agencies?
Given that such a well-known tax haven has joined the fight against evasion, the Panama tax law change shows that no one is safe from scrutiny. While maybe not such an extreme case, last week we wrote about Switzerland taking an uncharacteristically tough approach towards tax collections, showing that even in countries known for being tax havens, there are strict systems being put in place. With the advent of initiatives such as the Common Reporting Standard, authorities around the world have been working together to boost tax compliance, and have become far more efficient at picking up on inconsistencies and discrepancies. Therefore, if you’re an agency wishing to place contractors across borders, it’s vital that your compliance solutions are in line with international and local legislation in order to avoid potentially hefty fines. Unfortunately, this is not an easy thing to do. For this reason, we recommend seeking out help from international experts that specialise in understanding the complex and ever changing land of international compliance.
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