Friday, November 12, 2010

U.S.-Panama Business Group Gears Up For Washington FTA Lobbying Push

Inside U.S. Trade - 10/22/2010
Posted: October 21, 2010

U.S.-Panama Business Group Gears Up For Washington FTA Lobbying Push

A U.S.-Panama business group is planning a new push to lobby the Obama administration and Congress to secure the approval of the long-stalled U.S.-Panama free trade agreement, according to a Panamanian private-sector source.
The U.S.-Panama Business Council will hold meetings in Washington on Nov. 18-19 with U.S. lawmakers, State Department officials and members of the U.S. private sector, this source said. He did not provide further information on what the group planned to discuss during these meetings.
Panamanian sources said the primary obstacle to the passage of the U.S.-Panama FTA remains the demand by the U.S. that Panama sign a tax information exchange agreement (TIEA) with the U.S.
Panamanian Vice President Juan Carlos Varela and U.S. Trade Representative Ron Kirk discussed the tax transparency issue during a Sept. 30 meeting in Washington, according to USTR spokeswoman Nkenge Harmon.
The two officials also discussed U.S. concerns with "certain aspects of Panama's labor regime," Harmon said in an e-mailed statement.
One Panamanian source said during this meeting the U.S. sought to entice Panama into signing a TIEA by saying that in exchange it would allow a tax deduction for U.S. business travelers who visit Panama for conventions, seminars or other meetings.
Such a deduction is currently available for domestic travel, as well as travel to Canada, Mexico, Costa Rica, Guyana, Honduras and some Caribbean destinations, according to Rebecca Wilkins, senior counsel for federal tax policy at Citizens for Tax Justice. However, this deduction is not available if such meetings are held on cruise ships, Wilkins said.
Such an agreement would require the Panamanian government to hand over information on Panamanian bank accounts used by U.S. persons upon request by the U.S. government, which goes against current bank secrecy laws in Panama, they said.
Panama is currently listed on the Organization for Economic Co-operation and Development's "gray list" because of its status as a tax haven. In order to secure removal from the list, a country needs to implement 12 TIEAs or Double Taxation Treaties (DTTs) with full tax information exchange provisions (Inside U.S. Trade, June 11).
As of Oct. 20, Panama had signed nine such DTTs, according to a press release from the office of Panamanian President Ricardo Martinelli. Panamanian sources said three additional DTTs have already been negotiated and their signing is expected before the end of the year.
According to one Panamanian source who opposes the signing of a TIEA with the U.S., a recently passed U.S. law already would require some Panamanian banks to report information automatically on U.S. account holders.
The Hiring Incentives to Restore Employment (HIRE) Act, which President Obama signed on March 18 and is slated to go into effect on Jan. 1, 2013, includes provisions that will require foreign banks that do business with U.S. banks to report information on U.S. account holders in one of two ways, according to Wilkins.
The first option is for these banks to submit a Form 1099 to the Internal Revenue Service that would report the income earned on the U.S. account. The second option is for these banks to fulfill more stringent reporting requirements contained in the HIRE Act, under which the banks would not have to report the total income on the account but would have to provide information on the maximum amount in the account and the aggregate amount of transactions on the account.
In both cases, the banks would have to report the name, address and taxpayer identification number of the U.S. account holder.
Asked if these reporting requirements would make information exchange provisions in the TIEA redundant, Wilkins said this would not be the case. While the HIRE Act provisions would be helpful because they could aid the U.S. in identifying tax evaders by name, the TIEA provisions are also necessary because they allow U.S. authorities to request Panamanian authorities hand over any information about U.S. account holders upon request, Wilkins said.
One Panamanian source said the government had recently implemented a change to its law that would allow Panama's tax agency to gather information on account holders if such information is requested by a foreign government under the DTTs Panama is signing with other countries. He explained that this change was necessary in order to implement the tax information exchange provisions chapters of these DTTs.
TIEAs spell out in great detail the procedure for exchanging tax information between two governments. For example, the TIEA between the U.S. and the Cayman Islands consists of 13 detailed articles in information exchange.
By contrast, the OECD Model Tax Convention Article 26 Panama wants in a DTT with the U.S. is comprised only of five sections outlining basic commitments (Inside U.S. Trade, June 11).

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