Your Financial Secrets are (Still) Safe

Bob Bauman (August 11, 2010)

How Panama Preserves Privacy and Works Around OECD Bullying

The U.S. government’s war against overseas “tax havens” is impossible to ignore. And its latest assault on your financial freedoms only serves to underscore the value of directing your wealth into friendlier fiscal territory.

The sympathetic left news media paints an ugly picture of offshore asset havens. That’s not news to savvy Sovereign Investors. But what does make someone as skeptical as me sit up and take notice is how low the government will try to go to get its hands on your private financial data so that they can claim a stake in your own personal fortune.

Information … in Exchange for What, Exactly?

Tax-hungry, deficit-ridden “G-20” countries are to blame. These welfare nations use their global publicity arm, the Paris-based Organization for Economic Cooperation and Development (OECD).

Their leftist plan of attack includes tyrannical blacklisting and a demand to end all bank secrecy and individual financial privacy.

The OECD’s ultimate goal really is to impose automatic exchange of tax information on individuals across the globe. And their current test is the signing of Tax Information Exchange Agreements (TIEAs). It’s a slippery slope!

And this test, currently imposed on “offshore financial centers,” (the newly respectable term for what once were tax havens), includes a white, grey or black list. It all depends on the number of TIEAs each jurisdiction has signed with other countries.

Weakened Financial Privacy

Former defenders of financial privacy – Switzerland, Liechtenstein and Austria – have all weakened their strict bank secrecy.

Now the OECD is putting pressure on one of the last nations with the political cojones to stand firm on their policies of financial privacy and bank secrecy.

It’s the Republic of Panama.

Panama’s strong pro-privacy stand results from the 2009 election of a free-market conservative as president. Ricardo Martinelli is a self-made grocery chain tycoon and multimillionaire.

Colorful Strategies in Grey Areas

Since the very start of his administration, Martinelli and his cabinet officials have made OECD-sympathetic statements about wanting “greater transparency, competitiveness and to strengthen existing good practice in economic activities of Panama’s service sector.”

The Panamanian government has been able to strategically negotiate at least 12 agreements to avoid double taxation with OECD member countries. These allow Panama’s removal from the “grey list,” possibly by the end of this year.

As of last month, Panama had negotiated and signed double tax treaties with Belgium, Italy, Qatar, the Netherlands, Barbados, Spain and Mexico. And negotiations with France and Luxembourg are under way.

The country is awaiting confirmation of talks with South Korea, India, Japan, Switzerland, Israel and England. Significantly, the United States is not on that list.

In a recent interview in the French publication Le Figaro, Panama’s Economy and Finance Minister Alberto Vallarino said: “My government’s priority, since starting work last July, is to put an end to this false reputation as a tax haven.”

President Ricardo Martinelli and his Mexican counterpart, Felipe Caldern, signed the first of these TIEAs at a Summit of Latin American and Caribbean Unity.

But the treaty they signed is NOT what comes to mind when you hear the phrase “tax information exchange.”

Article 26

That broad phrase has taken on the liberal meaning generally assigned to it by loud, anti-tax-haven advocates of Article 26 of the OECD Model Tax Treaty.

What these OECD radicals want is automatic tax and financial information exchange. And they still are working feverishly toward that goal. (France has even adopted its own arbitrary blacklist of tax havens and imposed a huge tax on French transactions with named places.)

But Panama instead cleverly negotiates and signs bilateral treaties that provide a specific method to avoid the double taxation. The treaties ensure that Panama and another country don’t both tax same personal or corporate income earned by an individual with ties to both countries.

Devil in the Details

I have read all 18 pages of the Panama-Mexico tax treaty (typical of all these agreements). And I can assure you that document does not allow automatic tax information exchange, and it especially does not waive existing strict Panamanian bank secrecy laws.

Having seen the treaty terms, I can tell you that the agreement embodies Martinelli’s strategy. He avoids having Panama classified as an uncooperative “tax haven” by negotiating and signing double taxation agreements with like-minded nations.

Territorial Taxes

Some of my Panamanian friends point out that the United States government (IRS) wants to force Panama to “open its books.” And that to do so would be “one way street” information sharing.

This is because the U.S. doesn’t have any tax information Panama wants!

That’s because Panama, unlike the United States, has a sensible “territorial tax system.” Panama doesn’t tax earnings outside its national borders. So Panama therefore doesn’t care what Panamanians earn in the U.S. or anywhere else.

A Sovereign Nation

Panama is one of those sovereign nations that holds the view that the OECD and the United States have no right to force anything upon them.

Why should another country’s government tell them how they may run their own?

They intend to make and defend their own laws — without outside interference.

Why must they provide information on their own domestic corporations, trusts, family foundations and bank accounts to other governments?

Strength & Independence

I have been in politics and served in government for enough years to know that nothing is ever final when it comes to official policies, especially those governing taxation.

But the Republic of Panama enjoys a strong, growing economy, increased bond ratings based on conservative fiscal policy, a current US$6 billion expansion of its globally strategic Panama Canal, and a long history of dealing with demands and pressure from the United States government and other outsiders.

After more than a century of nominal independence, and a decade of real independence from Washington’s colonial control, Panama is not about to surrender now.

Robert E. Bauman JD
Legal Counsel, The Sovereign Society

P.S. I’ll be meeting my friends and Council of Experts members Rainelda Mata-Kelley and Ramses Owens — two Panamanian attorneys, in Los Cabos, Mexico, for our annual Offshore Advantage Academy.

Join us, along with offshore asset protection and investment experts from across the globe. This event happens only once a year, and there’s no better time than now to learn about the overseas financial world and to meet the experts!

Plus, Save Big when you Register Now as an Early Bird. Click Here Now for Full Event Details!

Tags: Offshore Banking