3rd September 2019
Panama, occasionally referred to as the Bridge of the Worlds, is well known as a tax haven. In fact, the nation has had a reputation for tax avoidance & evasion dating back at least as far as the early 20th century, and has been cited repeatedly in recent years as an uncooperative jurisdiction with international tax transparency.
However, this may be about to change, with France and Panama signing a landmark bilateral agreement designed to curb tax fraud. The link-up between Panama, one of the world’s most notorious tax havens, and France, a leading nation in the international fight against evasion is another significant sign that the global push towards tougher compliance systems is intensifying. Here’s what contractors need to know about the Panama tax reforms.
Panama tax reforms
Panama’s tax reform program has claimed a huge victory with this bilateral agreement, announced last week by French minister of accounts, Gérald Darmanin. The deal is a significant step in co-operation between the nations and includes provisions for the creation of a special group that will meet twice a year to improve the exchange of fiscal information.
While France and Panama have already implemented double taxation agreements, Paris is not satisfied with the current state of information exchange and still ranks the country on its list of tax havens.
Although France withdrew Panama from this in 2012, it was promptly put back on the list in 2016 after the Panama Papers scandal. In fact, the French government is currently investigating 500 tax evasion cases by French citizens implicated in the treasure trove of leaked documents.
Since the Panama Papers, the country has implemented financial reforms that are more in line with the International World Forum or Organisation for Economic Co-operation and Development (OECD) standards, a move that the European Union took in good faith and subsequently struck Panama from their blacklist.
Panama tax reforms – a continuous process
This is not the only promising tax reform that Panama has taken to address rampant tax evasion in the country. In fact, we recently wrote about the nation making tax evasion a criminal offence for the very first time.
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.
Contractors need to be aware
Currently, even in some of the most notorious havens in the world, there have been record collections, historic laws, and numerous other strong measures taken to crack down on tax fraud. Contractors looking to work abroad need to be aware that there are very few countries considered a ‘soft touch’ on tax and compliance – with the Panama tax reforms a burning example of this. This is not an area to be taken lightly.
Therefore, ensuring that you are not unwittingly breaching the law when doing business is crucial. Unfortunately, with the complex state of international legislation, this is not an easy thing to do. However, this shouldn’t dissuade you from thriving in international markets. With an expert contractor management consultancy, you can rest easy that compliance is taken care of, while you focus on your own expertise.
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