Panama is not a haven for guns

        If you thought Panama was a place to get a license for transshipment of weapons, regulations are very strict and meant to discourage such activities.

1. Are there any restrictions on gun parts importation and exports ? What is permissible and what is not?

Panama's legal regulations on exporting and importing Gun parts and (firearms later on) 

Panama has very strict legal regulations on exporting and importing Gun parts and firearms - definitely more strict than the US - which make ownership almost impossible. Prevalence of firearms during the Central American civil wars and the Colombian guerrillas has forced the government to impose strict controls. Law 57 of 2011 regulates holding, carrying, exporting, importing, marketing, storage, brokerage, transportation and trafficking of firearms, ammunition and related materials by individuals and companies pursuant to article 312 of the Constitution.ⁱ

Individuals and companies are prohibited from

1. Carrying or having firearms and war elements such as the AK-47 and AKM.

2. Carrying or having fragmentation grenades, grases of mechanisms for release of biological, toxic, corrosive or narcotic substances.

3. Carrying or having offensive or defensive elements, devices, equipment and instruments for exclusively military not considered firearms, nor weapons of mass destruction which are similar to these.

4. Importing, manufacturing, marketing or installing accessories or modifying weapons of private use in order to silence their detonation upon their being fired.

5. Collecting weapons or elements of war, even when deactivating them or having one or more of their parts been extracted to make their working impossible.

6. Modify the firing mechanism of a private weapon transforming it into an automatic firearm, able to fire as a machine gun.ⁱⁱ

2. Are special permits / licenses required for us in order to do transactions with this type of goods ( military supplies, gun parts and firearms later on) 

Only companies of Panamanian capital (owned by Panamanians) with registered shares (no bearer shares) may import firearms, their accessories, ammunitions, cartridges, and related materials, upon previous authorization by resolution of the Institutional Directorate of Public Safety Affairs (DIASP) of the Ministry of Security. Importation of weapons prohibited under Article 14 will not be authorized. Authorized shipments may only be destined for sale within the territory of the Republic of Panama. Therefore, subsequent exportation of the shipments imported is also prohibited.ⁱⁱⁱ

In addition the importer must send all weapons imported to DIASP for ballistic testing and when possible must have the serial number engraved with the letters PTY.^iv

Requirements for a distributor license include among others:

1. Filing an application through an attorney before DIASP.

2. Be Panamanian by birth or naturalization.

3. Certification by Treasurer showing names of all shareholders.

4. Certification by accountant showing names of all shareholders and percentage of ownership.

5. Civil liability insurance from Panama insurer for at least $40,000.

6. Background police report of all shareholders and directors.

7. Not having been condemned by a tribunal for crimes against life and safety, freedom, family, economy, collective safety, State or humanity.^v

Requirements for the brokerage license are:

1. Filing an application through an attorney before DIASP.

2. Be Panamanian by birth or naturalization.

3. Not having been condemned by a tribunal for crimes against life and individual safety, freedom, family, economy, collective safety, State or humanity.

4. Pay the $500 government license.^vi

Fines for importing or selling firearms or related material without complying with Law 57 are of between $1000 to $20,000, plus imprisonment when provisions of the Criminal Code are infringed.^vii

Companies involved in this business must also comply with all Ministry of Commerce, Ministry of Economy and Finance (MEF-DGI) taxation, Municipal tax, Ministry of Labor and Social Security regulations described in our Doing Business in Panama brochure, like any other business.

Please also note that all applications are subject to the regulatory bodies' approval.  While we are diligent in following regulations in force, government officials may arbitrarily change rules and demand additional documents at any time during the application process.

3. Tax regulations on importing Gun parts? Import and export duty? 

The regulations and permits above mentioned are applicable for importation of gun parts and accessories. Each shipment imported or exported must be previously authorized by DIASP.^viii

All imports are subject to a 7% value added tax (ITBMS). An import duty is also levied depending on the item. Customs brokers handle said information and they would require the Brussels item number in order to look up the rate in the government computer or manually which can take more than 1 week.

iArt. 1, Law 57 of 2011.

iiArt,14, Id.

iiiArt. 53, Id.

ivArt. 64, Id.

vArt. 26, Id.

viArt. 70-71, Id.

viiArt. 91. Id.

viiiArt. 65, Id.

Tax Havens, Tax Competition and Economic Performance

Tax Havens, Tax Competition and

Economic Performance

Low-tax jurisdictions play a valuable role in the global economy.  Economic research indicates that so-called tax havens provide a tax-efficient platform for cross-border investments, help boost saving and investment, and thus increase global economic growth. Tax havens also encourage good policy in non-haven countries.  In part because of jurisdictional competition, maximum tax rates on personal income have fallen by about 23 percentage points since 1980 and top tax rates on corporate income have fallen by almost 20 percentage points.  These policies have boosted growth and job creation.

The United States is the world's largest beneficiary of tax havens and tax competition, both because the U.S. is a tax haven for foreigners and because tax havens facilitate the flow of capital to the American economy. Foreigners have more than $11 trillion invested in the U.S. economy, including more than $7 trillion invested in America's financial markets. Nearly $1.3 trillion is placed in the U.S. financial system by Caribbean institutions. This money helps finance America's economic growth.

By Yesim Yilmaz

What are tax havens?

Tax havens are countries with very low tax rates set-sometimes as a matter of long-standing policy and sometimes as a recent and deliberate strategy to draw out-of-jurisdiction investment.  This definition is imprecise, but for a good reason:¹ many additional characteristics including the nature of corporate registrations, requirements on beneficial ownership information, rules governing trusts, and the financial privacy companies and individuals enjoy could qualify a jurisdiction as a tax haven. In British Virgin Islands, Delaware, and Panama, one can incorporate a company within a few hours with little information about ownership and nature of work.  Switzerland, Singapore and Cayman Islands are among countries that generally do not disclose information on personal financial transactions.²  

Interestingly, the United States qualifies as a tax haven for both the federal rules that govern foreigners' income, and the state rules on corporate taxation, registration and privacy. Compared to U.S. taxpayers, non-resident aliens pay low or no taxes on investment income-an important characteristic of tax havens according to the Organization for Economic Cooperation and Development, an obdurate opponent of tax competition.  The federal government generally does not tax the investment income of a foreign corporation if the earnings are unconnected with a U.S. trade or business, and foreigners are not required to pay taxes on their investment income from U.S. businesses unless they reside within the United States [Mitchell, 2001].

Furthermore, states offer many additional tax benefits designed to attract out-of-state investments, and the federal government generally does not have the authority to override these decisions. Nevada, Texas, Wyoming, and Washington do not tax corporate income; Alaska, Delaware and Nevada do not collect beneficiary information on registered companies; in Wyoming, corporations can take advantage of nominee bank accounts that protect ownership identity; and trusts in Delaware do not have public filings or recordings, and do not generally require accounting [ITIO and STEP, 2002]. Additionally, tax rules are "negotiable" in many states, and many large out-of-state investors are able to get concessions in return for investing within the state.³

The presence of tax havens has two important implications for the world economy: First, tax havens reduce the effective marginal tax rate on capital and, as a result, create more incentives to save and invest. Because the cost of doing business in (or through) tax havens is lower, businesses operating in or through these countries can undertake investments with lower expected returns or higher risks than those in high-tax jurisdictions. With these new investment opportunities, individuals will most likely consume less (or keep a smaller share of their wealth in non-income generating assets such as homes, artwork, or commodities), and save and invest more.  It is important to note that some portion of increased savings and investment represent funds that would have been paid as taxes in a high-tax jurisdiction, some of the funds are capital people reallocate from other sources in their portfolio to take advantage of investment opportunities that were not previously available, and some of the funds represent a shift from consumption and into new capital.

Second, tax havens curb the size of the public sector, and force governments to cut taxes and improve efficiency in public service delivery.   By providing a "low-tax" alternative for mobile taxable resources, tax havens make it difficult for politicians of the world to divert funds from the private sector to the public sector. In fact, since the 1980s, effective corporate income tax rates across the industrialized world have fallen by nearly fifteen percentage points, and statutory tax rates have dropped by almost 20 percentage points [Hines, 2005]. During the same period, tax haven activities as a share of world economic output have increased eight-fold.  Without tax competition from tax havens, the sweeping reduction in corporate tax rates would not have been possible (see Figure 1). Personal income tax rates also have fallen dramatically, with top rates in industrialized nations dropping by more than twenty percentage points since 1980 (see Figure 2).

To keep their tax bases intact in the presence of competition from low-tax jurisdictions, politicians must reduce public spending, cut taxes on mobile taxable resources, or shift a relatively larger portion of their tax revenues to less destructive forms of taxation imposed on labor and consumption. Needless to say, shifting taxes to immobile bases is a daunting endeavor with high political costs.  Taxing immobile sources would make the tax system more "efficient" (and evasion more difficult), but from the politician's perspective, tax hikes on bread, milk, and payrolls are extremely unpalatable. Not surprisingly, faced with jurisdictional tax competition from tax havens, governments have invariably chosen to reduce tax rates on corporate and personal incomes. For example, the reductions in the effective tax rates since 1980s are almost entirely due to tax rate reductions by governments (and a small percent is due to capital moving out). 

Do international tax rules matter?

Studies that look at the relation between foreign direct investment and after-tax rates of returns on investment consistently find a strong, positive correlation.  Among other things, this relation reflects the extent to which investors respond to tax incentives [Hines, 1999]. U.S. multinational firms invest fewer dollars in countries with high tax rates, whether direct taxes on corporate income, or indirect taxes levied on things other than the corporate income-for example payroll taxes, license fees, etc. [Desai, et al., 2006]. The use of indirect taxes expanded considerably recently, and businesses have become very sensitive to indirect tax rates in making their investment decisions.  One study finds that U.S.-owned affiliates of multinational companies tend to reduce their asset holdings by 7.1 percent in countries with 10-percent higher indirect tax rates (measured across countries).  A 10-percent increase in corporate taxes, on the other hand, results in a 6.6 percent decline in the total assets held [Desai, et al., 2004].⁴

Other evidence on the relation between international tax rules and business investment decisions includes the financing and structuring of companies, particularly since equity and debt are treated equally in low-tax countries⁵ [Desai, et al., 2004], low overall tax liabilities [Harris, et al., 1991] and low tax/sales ratios observed for multinationals with tax haven presence [Desai, et al., 2003].⁶

Because international tax rules matter for business investment decisions, governments cannot ignore the impact of lower taxes in other jurisdictions. Low tax rates elsewhere attract investors and reduce the tax base in the home country, and significant evidence supports the view that countries react to losing "market share" in foreign direct investment by reducing their effective tax rates. For example, the average effective tax rate in manufacturing (measured across 58 countries with significant U.S. multinational presence) has gone down fr

om 33 percent in 1980 to 21 percent in 2000 (Table 1).

Tax cuts instituted in response to tax competition appear to be the biggest factor behind the reductions between 1992 and 1998 [Altshuler and Grubert, 2004]. The evidence shows that countries suffering the greatest loss of capital were most likely to reduce tax rates. Additionally, those nations with high initial average effective tax rates cut tax rates more than the average country.

Effective tax rates in manufacturing exhibited another big dip between 1998 and 2000 and empirical studies suggest that company behavior (and not country behavior) helps explain the decline. In other words, companies took advantage of tax differentials by shifting economic activity among jurisdictions in ways that lowered their overall tax burdens. For this brief period, variables such as initial tax rates, share of foreign direct investment, and country size lose their explanatory power. The prevailing statutory tax rate, however, exhibits strong positive correlation with the declines in the effective tax rates.  High statutory tax rates cause changes in company behavior because of incentives to reorganize in ways that reduce effective tax rates.

To take advantage of low effective tax rates elsewhere, companies more frequently organize as hybrid firms (treated as branches from the U.S. point of view but incorporated as entities in the hosting tax haven country), or create ownership chains (which involve foreign affiliates owning other foreign affiliates in tax haven countries). While hybrids shelter payments of interest and royalties to a tax haven company from U.S. taxation [Altshuler and Grubert, 2004], ownership chains reduce tax obligations by indefinitely deferring the repatriation of retained earnings [Desai, et al., 2006]. Both strategies have become more prominent recently. Setting up of hybrids has been greatly simplified since 1997, and between 1982 and 1998, share of indirectly owned affiliates through ownership chains increased from slightly under twenty percent to almost forty percent of all affiliates [Desai, et al., 2003].

How do tax havens perform?

Between 1980 and 2000, foreign direct investment increased from one-half of one percent of world production to four percent of world production.  This increase in foreign direct investment has disproportionately benefited tax haven countries and helped lower-tax jurisdictions grow much faster than the rest of the world. The per capita real gross domestic product (GDP) in seventeen tax haven countries (places where U.S. multinationals frequently do business) grew by 3.3 percent between 1982 and 1999, while the average growth rate of per capita real GDP elsewhere was 1.4 percent [Hines, 2004].⁷

This calculation could overestimate the growth in tax havens because by definition, GDP is output produced within the borders of a country; in tax havens, this figure possibly includes some reported income (for tax-avoidance purposes) associated with output produced elsewhere. As an alternative, Hines [2004] reports the annual growth in per-capita gross national product (GNP), which measures the value of goods and services produced by a county's nationals.  Measured this way, tax-haven growth is still significantly higher than world averages: Per capita GNP in the world grew by 1.4 percent while in tax-haven countries it grew by an average of 3 percent every year between 1982 and 1999.

Despite their low tax rates (or perhaps because of them), tax-haven governments are not relying on low levels of tax revenue compared to the rest of the world (see table 2).  Governments in tax-haven countries consume a quarter of the total GDP-less than the burden of government in Europe and the United States, but higher than the global average. Empirical analysis of government size and other country variables (such as population, per-capita income) shows that while smaller countries have bigger governments, tax-haven countries have smaller governments controlled for their size and affluence levels. That is, governments of tax havens collect and spend fewer dollars compared to the higher-tax countries of similar size and income level.⁸

  

Are tax havens harmful?

Recent increases in international investment activity and the concomitant shifting of economic activity to tax havens (and other low-tax jurisdictions) have motivated a number of high-tax countries to undertake actions designed to hinder the flow of jobs and capital to jurisdictions with better tax law. For example, the OECD launched a "harmful tax competition" initiative in the 1990s, a scheme designed to penalize so-called tax havens. The OECD justifies its actions by arguing that extensive tax competition "undermines fair competition and public confidence in the tax system" [OECD, 2004].

In this context, the relevant question is not whether "tax havens reduce confidence in the tax system" but whether the economic success of tax havens comes at the expense of growth elsewhere-presumably in higher-tax countries.  There is no doubt that the threat of tax competition compels higher-tax nations to reduce tax rates.  However, this does not mean that tax competition is a zero sum game as the OECD appears to argue, or that the gains in the private sector are offset by the losses in the public sector.  If tax havens help channel funds towards activities that are more productive than the ways in which governments use funds, then the net gain to the world economy will be positive.⁹ In other words, the presence of tax havens could be complementary to economic gains in neighboring high-tax jurisdictions if tax havens force high-tax jurisdictions to organize more efficiently - or, even more importantly, to lower tax rates.

In a recent empirical study, using firm-level data from U.S. multinational firms, Desai et al. discredit the claim that the existence and use of regional tax havens reduces economic activity in high tax locations [Desai, et al., 2006a]. On the contrary, the authors find evidence that tax havens have positive spillover effects for nearby high-tax jurisdictions by providing a tax-efficient platform for investment. More specifically, they find that a one percent greater likelihood of establishing a tax-haven affiliate is associated with a 0.3 percent greater investment and sales in nearby non-haven countries.  Desai et al. point out that:

"From the standpoint of host country governments, the ability of foreign investors to use tax havens in the same region has the beneficial effect of stimulating investment, even as it may erode tax revenue collection from any additional investment.  For governments that, on efficiency grounds or other grounds, would prefer to reduce tax rates on inbound foreign investment but are constrained from doing so by political or other considerations, encouraging the widespread use of regional tax havens offers a convenient alternative. The fear that the existence and use of regional tax havens might encourage firms to substitute economic activity away from nearby high tax locations receives no empirical support in the behavior of American multinational firms."

The finding that tax havens benefit neighboring jurisdictions is a special case of a more general rule: fewer restrictions on capital, through low taxation or removal of other rules, will make existing capital more efficient and facilitate a larger capital stock.  The consequent gains in growth and prosperity will benefit everybody. (It is, however, harder to empirically demonstrate the extent of the gains to the rest of the world, especially the indirect gains.)  Tax havens constitute an important source of such gains in efficiency because they are the only alternatives to the current "highly imperfect international system for the prevention of double taxation." [Teather, 2005, p. 31]  Teather notes that tax havens provide an environment where companies can freely pool international capital, without having to worry about multiple tax rules, and onerous investment regulations. Thus, tax havens increase the efficiency of global capital markets, and the gains in growth benefit not only the tax havens themselves and their neighbors, but also everyone else who eventually receives the fruits of growth through better products, more jobs, or cheaper prices. 

In response to the question, "What should a tax system look like?" tax havens would be a good starting point for investigation. A recent paper by Mitchell [2006] makes the moral case for tax havens, highlighting the relation between oppressive governments and oppressive tax systems. Mitchell notes that tax havens establish environments that are respectful of individual human rights, and offer politically stable environments with strong rule of law, and little corruption. In these ways, tax havens create higher standards of governance to which other countries must eventually adhere to in order to keep their tax bases. This picture is in stark contrast to the frequent description of tax havens as thug-filled countries primarily in the business of money laundering.¹⁰

What do tax havens mean for Americans?

Because the U.S. imposes taxes on foreign-earned income of U.S. based corporations, using tax havens for tax avoidance is relatively costly for American multinationals. Other incentives built into the U.S. tax system discourage tax haven presence for U.S. multinationals:  for example, in calculating their U.S. tax obligations, American multinational companies can deduct foreign taxes from their U.S. obligations and can claim credit, over an extended period, for any tax payments they have made in excess of U.S. obligations. Thus, American firms might be reluctant to take advantage of tax havens especially if the consequence is increased U.S. tax liabilities [Hines, 2004; Hines, 1999].

Traditionally, U.S. direct investments abroad have been structured to take advantage of intangible assets like patents and trademarks (or to defer repatriation of income).  In recent years, however, U.S. manufacturing companies appear to have become more sensitive to differences in taxes across countries [Altshuler and Grubert, 2004]. The location of real manufacturing capital held by U.S. parents appear to correlate more strongly with the local tax rates (of the host country), and the transactions between the U.S. parents and their manufacturing subsidiaries in low-tax jurisdictions have been increasing.  Given globalization in trade, and increased competition from low-cost producers, moving capital (and even production) to low-tax countries might eventually become an unavoidable survival strategy for American companies.

What would the relocation of productive activity and capital to tax havens mean for Americans? On the negative side - assuming politicians do not control government outlays, the U.S. government will borrow more to cover short and medium term costs, putting additional financial constraints on current and future generations.  Competition from tax havens could also reduce the amount of foreign direct investment into the U.S. if foreign multinationals choose to invest in tax havens for reasons similar to those that influence the U.S. companies.

While low-tax jurisdictions put competitive pressure on the United States, the process of tax competition unarguably generates more benefits than costs for America. The United States is the world's largest repository of global capital. The Commerce Department reports that foreigners have invested more than $11 trillion in America's economy, including more than $7 trillion of financial investment [Nguyen, 2005]. Tax havens are a particularly important source of capital for the U.S. economy. The Treasury Department reports that foreigners have more than $3 trillion of capital in U.S. banks and other financial accounts.  As of March 2006, tax havens helped funnel nearly $1.3 trillion to U.S. financial markets [TIC, 2006]¹¹ (see Table 3). Losing some or all of this capital to other tax havens - which would happen if the U.S. ceased its favorable tax treatment of foreign investors - would have significant negative impact on the U.S. growth and employment ¹²

On the plus side, firms are likely to pass on savings from low-cost production to consumers. Additionally, as the U.S. government loses some of its tax base, in the long run, it could become smaller and more efficient, and jurisdictional tax competition might force the federal and state governments to reduce corporate tax rates from their current (combined) 39.9 percent-which is the highest rate corporations face among the developed countries [Atkins and Hodge, 2005]. Such reforms would be especially desirable since lower tax rates would eliminate the incentive to shift activity from the U.S. economy.

Conclusion

This risk of economic failure associated with ineffective competition for funds makes tax havens important sources of economic discipline for the U.S. Tax havens will not be a problem for the U.S. economy, as long as U.S. remains a tax haven itself, with productive and stable investment environment.  In other words, presence of tax havens contributes to the long term success of the U.S. economy by making it harder for the U.S. to reduce the "quality" of the investment climate both for domestic and foreign investors. 

___________________________________

Yesim Yilmaz is a research fellow with the Center for Freedom and Prosperity Foundation.

See full text and footnotes in 

https://archive.freedomandprosperity.org/Papers/taxhavens/taxhavens.pdf

The International Trade and Investment Organization (ITIO) #2

News Releases:

Global Transparency, Exchange of Tax Information and Small Nations – Much Has Been Done, But More Needed to Ensure a Level Playing Field
29 May 2006

LEVELING THE PLAYING FIELD Paper by the International Trade and Investment Organization OECD Global Tax Forum Melbourne
15-16 November, 2005

LEVELING THE PLAYING FIELD Proposal by the International Trade and Investment Organization OECD Global Tax Forum, Ottawa
14-15 October 2003

IT’S OFFICIAL: OECD TAX PROJECT DEPENDS ON LEVEL PLAYING FIELD
Finance centres expect joint working group to meet soon.
23 October 2003

EU CONCESSIONS THREATEN OECD TAX TIMETABLE
10 October 2003
EUROPE THREATENING OECD'S PLANS TO SWAP TAX INFORMATION
24 March 2003
SMALL STATES TACKLE DISCRIMINATION
20 March 2003


NEWS RELEASE ARCHIVES

   2002
   2001

ITIO in the News: 

Tax haven London: Small countries seek to gain the financial high ground
Financial Times (EDITORIAL)
02 May 2007

FINANCIAL STANDARDS COME UNDER FIRE
Financial Times01 May 2007

FINANCIAL CENTRES WORKING TOWARD ‘LEVEL PLAYING FIELD’
Barbados Advocate.com22 October 2003

SWISS BANKING SECRECY UNDER PRESSURE
Swissinfo.org15 October 2003

OECD HAVENS PLANS FACING COLLAPSE, SAYS OFFSHORE FINANCIAL CENTERS LOBBY
Daily Tax Report, Bureau of National Affairs14 October 2003

OECD TAX PLAN FACES COLLAPSE
Financial Times (European edition)10 October 2003

UNBEHAGEN DER STEUEROASEN
Neue Zürcher Zeitung11 October 2003

DRIVE TO END TAX EVASION RUNS INTO NEW OBSTACLE
Financial Times (UK edition)
10 October 2003
OFF-SHORE CENTRES WORRIED BY EU SAVINGS BILL
Forbes.com10 October 2003

A QUESTION OF TRUST
International Money Marketing
13 July 2003

CASHING IN ON A PARADISE ISLAND
Accountancy Age
23 January 2003
"ITIO in the NEWS" ARCHIVES

   2002
   2001

Commentary: 

A Level Playing Field for Tax Information Exchange?Richard J Hay, Tax Planning International Review
September 2003

Information Exchange and Global Economic Regulation: For Whose Benefit? - Dr Terry Dwyer, Australian National University.

Global Competition in Offshore Business Services: Prospects for Developing Countries - Rajiv Biswas, Commonwealth Secretariat

Offshore Financial Centres and the Supranationals: Collision or Cohabitation? - Richard J Hay, Stikeman Elliott (Chase Journal, September 2001)

WTO Compatibility of the OECD 'Defensive Measures' against 'Harmful Tax Competition' - Dr Roman Grynberg and Ms Bridget Chilala, Commonwealth Secretariat, September 2001

Potential WTO Claims in Response to Countermeasures under the OECD's Recommendations Applicable to Alleged Tax Havens - Stephen J. Orava, Baker & McKenzie, October 2001

Think Again: Money Laundering - Nigel Morris-Cotterill (Foreign Policy, May-June 2001)

The OECD, Harmful Tax Competition And Tax Havens: Towards An Understanding Of The International Legal Context - Professor William Gilmore, Faculty of Law University of Edinburgh. (from Commonwealth Secretariat website)

The Implications of The OECD Harmful Tax Competition Initiative for Offshore Financial Centres Paper - Commonwealth Secretariat (from Commonwealth Secretariat website)

OECD Curbs on International Financial Centres: a Major Issue for Small States - B Persaud (from Commonwealth Secretariat website)

The OECD "Harmful Tax Competition" Initiative - Michael P Devereux (from Commonwealth Secretariat website)

Speeches: 

Statements by ITIO members at the opening session of the OECD Global Forum, 14 October 2003

• British Virgin Islands
• Cook Islands
• Panama
• St Vincent and the Grenadines

SPEECHES ARCHIVES

 2002
 2001

Contact Details

ITIO Secretariat
C/o Ministry of Industry and International Business
The Business Centre
Upton
St Michael
Barbados

Tel: (+246) 430 2200
Fax: (+246) 228 6167

Getting Paid by Your Panamanian Buyer

Payment Terms and Financing Options to Maximize Sales While Protecting Against Nonpayment

Despite the size of the Panama market – and the fact that Panama uses the U.S. dollar as its currency - many U.S. exporters are unsuccessful in selling to Panama or increasing their exports to Panamanian buyers.  Frequently, U.S. exporters lose sales due to the payment terms they demand of their Panamanian buyers.

U.S. exporters should be aware that Panama's lending rates are far higher than those faced by companies in the U.S. They are losing sales to Panamanian buyers because they are frequently demanding payment either by Confirmed Letter of Credit or Cash In Advance.  This can result in the following situations:

1. U.S. exporter fails to win new sales contracts or loses existing Panama clients because other foreign competitors are willing to provide the Panama buyer with open account terms.  Some Panamanian companies pay more just to get 30 or 60-day open account terms.

2. U.S. exporter sells less to a Panamanian client.  One Panamanian company interviewed stated that it would purchase four times as much from its U.S. supplier if it were given 90-day terms rather than having to pay cash in advance.

3. U.S. exporter loses medium term sales contract because a foreign competitor assists the Panamanian buyer in achieving better financing terms.

While it is prudent for U.S. exporters to insist on secure payment terms, it pays for them to consider the broad variety of payment terms available to them in order to become as competitive as possible.

The purpose of this guide is to identify the main financing and payment mechanisms available to support U.S. exporters selling to Latin America in general and to understand the cost, advantages and disadvantages of each mechanism.  This guide is an introduction and the reader is encouraged to use it as a starting point in order to become more familiar with the subject.  In many instances, the use of expert help is recommended.  To that end, the following mechanisms will be examined in this report:

1. Cash In Advance;

2. Confirmed Letter of Credit;

3. Open Account Terms;

4. Open Account Terms with Export Credit Insurance;

5. Documents Against Payment (D/P) & Documents Against Acceptance (D/A);

6. Export Finance by a US Commercial Bank (US$ denominated);

7. Import Finance by a Latin American Bank (Foreign Currency denominated);

8. Lines of Credit Available from Latin American-based Development Banks;

9. Sales to foreign public sector buyers with foreign Central Bank Guarantees are also addressed.

This guide was authored by the U.S. Commercial Service and funded in part by donations from PNC Bank and FedEx, U.S. Commercial Service Partners.

The guide is published in English (for U.S. exporters) and in Spanish (for you to share with your Panamanian buyers).

English Version:   http://buyusainfo.net/docs/x_1197802.pdf

Spanish Version:  http://buyusainfo.net/docs/x_7091554.pdf


Full text in https://2016.export.gov/panama/financingexporttopanama/index.asp

See also Debt collection in Panama http://mypanamalawyer.blogspot.com/2014/07/debt-collection-in-panama.html

Libre de virus. www.avg.com

The International Trade and Investment Organization (ITIO) #1

About the ITIO:

The International Trade & Investment Organization (ITIO) represents small and developing countries across Europe, the Caribbean, Latin America, the Pacific and Asia.

We work for a level playing field in the trade in services.We believe that all countries should be involved equally in developing new rules that affect them and should implement these rules to the same timetable, with the same penalties for non-compliance.

Aims:

The ITIO works for a level playing field in the trade in services, particularly in the development and implementation of new regulatory standards.

This includes, but extends beyond, taxation issues and entails dealing with a wide range of international bodies.

The ITIO is unique among groupings of small and developing economies, being funded entirely by members, which gives it total independence.

It seeks to take account of members' varying needs and stages of development and to produce results that are of benefit to all.

The ITIO works in partnership with the private sector where appropriate.

Live Issues:

Principles of a level playing field

Harmful tax practices

The misuse of corporate vehicles

There is a genuine need to combat the abuse of financial systems. The constant threat of terrorism and ongoing exposure of corporate scandals show this.

But action must be based on facts and fairness, not prejudice and preferential treatment.

If criminals are to be tackled effectively, international financial regulation must operate according to the principles of a level playing field.

Small countries with offshore finance centres are concerned at the behaviour of large, developed countries and of the supranational bodies they control, such as the Organisation for Economic Cooperation and Development (OECD), Financial Action Task Force (FATF), European Union (EU) and International Monetary Fund (IMF)

These too often seek to dictate terms to non-members while treating lightly or overlooking problems in their member countries such as Switzerland and Luxembourg, Hong Kong and Singapore, and Delaware and Nevada in the USA.

The OECD has been particularly guilty of this as it tackles harmful tax practices and the misuse of corporate entities.

Reports and Key Documents:

Paper by James Hines of the University of Michigan titled "Do Tax Havens Flourish?", October 2004

"Remodelling the Competition for Capital: How Domestic Politics Erases the Race to the Bottom" - an article in the American Political Science Review by Scott Basinger and Mark Hallerberg, May 2004

Rachel Griffith and Alexander Clemm of the Institute for Fiscal Studies report titled "What has been the Tax Competition Experience of the Last 20 Years?", February 2004

"The Benefits of Tax Competition" - a paper by Richard Teather of the Institute of Economic Affairs, 2005

Yesim Yilmaz paper for Prosperitas titled "Tax Havens, Tax Competition and Economic Performance", June 2006

Marshall Langer, writing in Tax Notes International on "The Outrageous History of Caribbean Tax Treaties with OECD Member States", June 2002

"Offshore Financial Centres: the Supranational Initiatives" - an article by Richard Hay

Louise Mitchell presentation to the Euromoney Annual Offshore Seminar titled "Reviewing the OECD Harmful Tax Initiative:  the St. Vincent & the Grenadines Perspective", May 2005

Global Transparency, Exchange of Tax Information and Small Nations – Much Has Been Done, But More Needed to Ensure a Level Playing Field 26 May 2006

LEVELING THE PLAYING FIELD Paper by the International Trade and Investment Organization OECD Global Tax Forum Melbourne, 15 - 16 November 2005

LEVELING THE PLAYING FIELD Proposal by the International Trade and Investment Organization OECD Global Tax Forum, Ottawa, 14-15 October 2003

Closing statement by the Co-Chairs: OECD Global Forum on Taxation, Ottawa, 14-15 October 2003
Levelling the Playing Field: ITIO paper tabled at OECD Global Forum on Taxation, 14-15 October 2003

Agenda for OECD Global Forum on Taxation , 14-15 October 2003

Towards a Level Playing Field - Second Edition

ITIO letter to OECD asking for commitment to level playing field, 12 February 2002The 17 fundamental clarifications sought from the OECD on 28 February 2001

LITTLE DIFFERENCE BETWEEN ONSHORE AND OFFSHORE, NEW ANALYSIS OF OECD DATA REVEALS “End stigmatisation and let us into treaty network”, say small countries Commonwealth calls for fair play Towards a Level Playing Field, second edition. Report undertaken by Stikeman Elliott on behalf of the ITIO and STEP.

MEMBERS

From an initial 12 members in March 2001, the ITIO now comprises 17 small and developing states as follows:

Caribbean Anguilla Antigua & Barbuda Bahamas Barbados Belize British Virgin Islands Cayman Islands St Kitts & Nevis St Lucia St Vincent & the Grenadines Turks & Caicos  Latin America Panama  Pacific Cook Islands Samoa Vanuatu

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OBSERVERS

International	Commonwealth Secretariat
Caribbean	CARICOM Secretariat
	Caribbean Development Bank
	Eastern Caribbean Central Bank
Pacific	Pacific Islands Forum Secretariat

Europeans remove Panama from black list, then place it again

2 years after the Council of the European Union removed Panama from its black list of non-cooperative jurisdictions for tax purposes and a number of compliance laws were approved which destroyed the local casinos, keep hotels with high vacancy rates and lowered the price of real estate, the EU again has included Panama in its list.  These laws were imposed by the troika of the Organisation for Economic Co-operation and Development (OECD), Financial Action Task Force (FATF) and the EC- none of which grants Panama voting power on their decisions.

The list includes now:

American Samoa

Cayman Islands

Fiji

Guam

Oman

Palau

Panama

Samoa

Seychelles

Trinidad and Tobago

US Virgin Islands

Vanuatu

Ironically, it does not include Iran, Syria or North Korea which are known trade partners of several European countries despite sanctions set up by the U.S.  The EU claims this process is meant to establish tax good governance worldwide but fails to contribute any funds to the non-financial entities gathering information for the tax collection efforts they demand from black-listed countries.

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Council of the EU
 
Press release
 
18 February 2020
 
10:32
 

Taxation: Council revises its EU list of non-cooperative jurisdictions

The Council today adopted revised conclusions on the EU list of non-cooperative jurisdictions for tax purposes.

In addition to the 8 jurisdictions that were already listed, the EU also decided to include the following jurisdictions in its list of non-cooperative tax jurisdictions:

• Cayman Islands;
• Palau;
• Panama;
• Seychelles

These jurisdictions did not implement the tax reforms to which they had committed by the agreed deadline.

16 jurisdictions (Antigua and Barbuda, Armenia, Bahamas, Barbados, Belize, Bermuda, British Virgin Islands, Cabo Verde, Cook Islands, Curaçao, Marshall Islands, Montenegro, Nauru, Niue, Saint Kitts and Nevis, Vietnam) managed to implement all the necessary reforms to comply with EU tax good governance principles ahead of the agreed deadline and are therefore removed from Annex II.

Read full text in https://www.consilium.europa.eu/en/press/press-releases/2020/02/18/taxation-council-revises-its-eu-list-of-non-cooperative-jurisdictions/

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 Council of the EU
 

Economic and Financial Affairs Council, 18 February 2020

EU list of non-cooperative jurisdictions

The Council today adopted revised conclusions on the EU list of non-cooperative jurisdictions for tax purposes.

Read full text in https://www.consilium.europa.eu/en/meetings/ecofin/2020/02/18/

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OUTCOME OF PROCEEDINGS

From: General Secretariat of the Council

To: Delegations

No. prev. doc.: 6050/20 FISC 61 ECOFIN 82

Subject: The Council conclusions on the revised EU list of non-cooperative jurisdictions for tax purposes

Delegations will find in the Annex the Council conclusions on the revised EU list of noncooperative jurisdictions for tax purposes, adopted by the Council at its meeting held on 18 February 2020

Council conclusions on the revised EU list of non-cooperative jurisdictions for tax purposes

ANNEX I

The EU list of non-cooperative jurisdictions for tax purposes

7. Panama

Panama does not have a rating of at least “Largely Compliant” by the Global Forum on Transparency and Exchange of Information for Tax Purposes for Exchange of Information on Request and has not resolved this issue yet.

Read full text in https://www.consilium.europa.eu/media/42596/st06129-en20.pdf

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Taxation: EU list of non-cooperative jurisdictions

What is the EU list of non-cooperative jurisdictions?

Read full text in https://www.consilium.europa.eu/en/policies/eu-list-of-non-cooperative-jurisdictions/

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COMMUNICATION FROM THE COMMISSION on new requirements against tax avoidance in EU legislation governing in particular financing and investment operations

V. Aligning Implementing Partners' internal policies to new EU tax requirements

Identification of beneficial owners 

When reviewing the structure of an operation to determine potential issues in terms of tax governance, the Implementing Partners generally use a minimum threshold of ownership, direct or indirect, of the relevant entities, to determine the significance of the presence of an entity in the shareholding structure. In this context, further consideration should be given to the proper identification of who ultimately owns or controls the beneficiary or beneficiaries of the funds, i.e. the ultimate beneficial owners. Consistency with the customer due diligence requirements from the anti-money laundering directive (Directive 2015/84932) is considered good practice. In the case of legal entities or legal arrangements, reference should be made to the beneficial ownership definition stemming from Article 3(6) (a) (b) (c) of Directive 2015/849 which is set on internationally agreed standards. In particular, Implementing Partners should at least identify the natural persons having a controlling ownership interest in a legal entity by considering the indicative threshold of 25% direct or indirect ownership - or having control through other means (i.e. consideration of lower threshold and other means of control). The Commission recommends that this assessment should be made for corporate entities even below such 25% threshold and ideally aiming at a 10% minimum threshold. After having exhausted all possible means and provided there are no grounds for suspicion, Implementing Partners can consider the natural person holding the position of senior managing official as the beneficial owner. In any case, Implementing Partners should record the actions taken in order to identify the beneficial owner. Where there is a remaining risk of tax avoidance linked to the identification of ultimate beneficial owners, the Commission recommends that Implementing Partners perform tax avoidance checks on all relevant entities involved in the project, whereby the relevant entities are defined under section IV (1).

Read full text in https://ec.europa.eu/info/sites/info/files/economy-finance/c_2018_1756_en_0.pdf

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ST 15117 2018 INIT04-12-2018

Panama's Foreign Owned Call Centres (PA005) 

Final description and assessment

OUTCOME OF PROCEEDINGS

From: General Secretariat of the Council

To: Code of Conduct Group (Business Taxation)

Subject: Panama's Foreign Owned Call Centres (PA005) ‒ Final description and assessment

I/ STANDSTILL REVIEW PROCESS (DECEMBER 2017)

1 : a. Description

The Panamanian Call Centre Regulation Law (Law No. 54 of October 25, 2001) provides tax and other special economic zone benefits to call centres established in Panama by foreign investors. However, the special tax exemption is limited to foreign companies who have “commercial use” call centres based in Panama.

For telecommunications, Law 54 of 2001 offers Call Centres the same incentives granted to export processing zones by Law 25 of 1992. The most relevant incentives are similar to those granted to export processing zones:

- No income tax, sales tax, import duty or any other national taxes levied on call centres export operations;

- Special employee stability regime (three years);

- Market fluctuations as a justified cause for labour contract termination.

Any person exploiting call centre activities duly authorized by the Panamanian Authority of Public Services may benefit from the tax benefits granted to companies operating in ‘export processing zones’. Activities benefiting are those considered ‘export’ services (e.g. the final destination of telecommunication services provided used outside the Panamanian territory).

II/ ROLLBACK REVIEW PROCESS2 :

On 4 September 2018, Panama informed the Code of Conduct Group that the Parliament approved the draft law to reform the Call Centre regime to ensure compliance with EU Code of Conduct criteria. The Group agreed that the rollback is sufficient at its meeting of 21 September 2018: see analysis below of the legislation provided. The Panama Call Centres reform was signed into Law by Panama's President on 17 October 2018, and published in the Official Gazette two days later:

https://www.gacetaoficial.gob.pa/pdfTemp/28637_A/GacetaNo_28637a_20181019.pdf

Gateway criterion - Significantly lower level of taxation:

The general tax rate in Panama is 25%. However, pursuant to the new law adopted to regulate the activity of Call Centre for Commercial Use (Call Centres) a full tax exemption on CIT is granted to authorised call centres, although other special tax measures apply. Therefore, the measure provides for a significant lower level of taxation and deserves an assessment under the Code.

Criterion 1 – Targeting non-residents: The law adopted on 4 September 2018 does not distinguish between transactions with resident and non-resident in order for the tax reduction to be granted. For what concerns the de facto effects of the measure, the information provided by Panama on the use of the regime before the reform are only partial. Panama explained that more information could not be provided as it was not requested to companies under the previous regulation.

Criterion 2 – Ring-fencing: The law adopted on 4 September 2018 does not exclude residents from the scope of the beneficiaries of the preferential tax treatment.

Overall Assessment

In the light of the assessment made under all Code criteria, the regime is considered as overall not harmful.

Read full text in https://data.consilium.europa.eu/doc/document/ST-15117-2018-INIT/en/pdf

See other assessments in https://www.consilium.europa.eu/register/en/content/out?typ=SET&i=ADV&RESULTSET=1&DOC_TITLE=Final+description+and+assessment&DOC_SUBTYPE=%22OUTCOME+OF+PROCEEDINGS%22&DOC_LANCD=EN&ROWSPP=25&NRROWS=500&ORDERBY=DOC_DATE+DESC