Panama as a Tax Haven, an Unwanted Title

Panama tax haven

Colombian and Panamanian finance ministers met on Wednesday to resolve a lingering tax dispute between the two nations. On Tuesday, the Colombian government included Panama in its “gray list” after the Central American nation failed to sign a tax information exchange agreement within the allotted time period.

Mauricio Cárdenas and Dulcidio de la Guardi, the finance ministers of Colombia and Panama, respectively, announced that they are looking for a mechanism that would defuse the conflict between the two nations and remove Panama from the list of “tax havens.”

“Our presidents gave us very clear and concrete instructions to move ahead in search of solutions that will allow us to arrive at an agreement between Panama and Colombia that is convenient for both parties,” Cárdenas said. The Colombian minister explained that Colombia seeks to “fight against tax evasion” and that Colombians living abroad must declare and pay taxes “if the capital belongs to tax-paying residents in Colombia.”

For his part, de la Guardia indicated that they have yet to develop a plan to “resolve the challenges Colombia has raised.” The minster argued that his administration “has only been in office for 100 days” and will likely face strong opposition in the Panamanian Congress.

In addition, de la Guardia rejected Panama’s inclusion on the list. “[Panama] is not a tax haven, and we reject being classified this way. It hurts us because the phrase is used in a discriminatory manner, when, on the other hand, Panama treats its citizens and foreigners the same way when it comes to tax-related matters,” he stated.

The Panamanian Foreign Ministry stated that “a tax information exchange agreement would not be beneficial, and would place us at a disadvantage as a corporate and international finance center.”

Colombia categorizing Panama as a tax haven will bring about important consequences for the Panamanian economy. Santiago Rojas, the director of the National Tax and Customs Department in Colombia, explained that money orders sent from Colombia to Panama will now be taxed at 33 percent instead of 10.

In addition, Rojas says the more than 500,000 Colombians living in Panama will be required to pay taxes in both countries. “The law states that Colombians that have tax residency in a tax haven will be considered Colombian tax residents, and will therefore be subject to income taxes on their annual worldwide income.”