provisionally-largely-compliant

Panama

To see the determinations and rating of all published reports click here.

Overall rating is Provisionally Largely Compliant

Panama has been reviewed under the fast-track procedures and assigned provisional overall rating. Panama will be scheduled to undergo a full review under the strengthened 2016 Terms of Reference in the near future.

Table of Determinations and Ratings of the Phase 2 Review

Jurisdictions should ensure that ownership and identity information for all relevant entities and arrangements is available to their competent authorities. (ToR A.1)
Determination Factors Recommendations
The element is in place, but certain aspects of the legal implementation of the element need improvement.   The Foundations Law and the know-your-client rules established by Law No. 23/2015 are not sufficiently clear to ensure the availability of updated identity information on all of the beneficiaries of private foundations established in Panama.  The relevant provisions of Panama’s laws should clearly ensure the availability of information on the identity of all of the beneficiaries of private foundations at all times. 
Phase 2 Rating Factors Recommendations
Non-Compliant.  There are approximately 486 000 SAs registered in Panama that are deemed to be inactive as well as 17 000 foundations. In these cases the resident agent may have lost contact with the company or foundation and its owners. For this reason the availability of up-to date ownership information in Panama, including information on owners of bearer shares, in these SAs and foundations cannot be sufficiently ensured.  Panama should modify its law and practices as appropriate and significantly reduce the substantially disproportionate number of deemed inactive companies in order to ensure availability of relevant information in respect of all legal entities that are registered in Panama. 
There is some uncertainty as to whether all bearer shares have been immobilised with custodians or definitively suspended by 31 December 2015 as required by law. In practice, Panama was not able to provide ownership information in a number of cases after the custodial regime was implemented. The newly introduced legislation regarding bearer shares including its transitional provisions might not, therefore, ensure that information is available in practice on all holders of bearer shares in all cases.  Panama should modify its law and/or practice as appropriate to ensure that information regarding the owners of bearer shares is available in all cases. 
Panama has not been able to provide statistical or practical information regarding any established administrative or supervisory mechanisms for the supervision of compliance with the requirements on entities to keep ownership and identity information concerning the period under review and the application of any resulting sanctions. It appears that enforcement provisions are not, or in any case not yet adequately, applied in practice and therefore these provisions generally may not sufficiently ensure that ownership information with regard to the relevant entities is available.  Panama should establish administrative or supervisory mechanisms for the monitoring and enforcement and the application of any resulting sanctions to ensure compliance with the legal requirements regarding the availability of identity and ownership information in Panama. 
Panama introduced changes concerning its AML framework in August 2015, including a number of enforcement provisions. The AML framework is extended to also cover resident agents. Although a positive step, these measures and related supervision activities are very recent and therefore remain to be sufficiently tested.  Panama should monitor the implementation of the newly introduced AML legislation and take measures to address any identified deficiencies. 
Jurisdictions should ensure that reliable accounting records are kept for all relevant entities and arrangements. (ToR A.2)
Determination Factors Recommendations
The element is not in place.   Only companies and partnerships operating in Panama are required to maintain accounting records.  The record keeping requirements in the Commercial Code should apply to all companies, limited partnerships and partnerships limited by shares registered in Panama irrespective of whether they carry on business in Panama. 
The Trusts Law and Foundations Law are silent on the type of records which are required to be kept and their retention period.  The record keeping requirements for trusts and foundations should be clarified to ensure that reliable accounting records are kept and retained for a period of five years. 
Phase 2 Rating Factors Recommendations
Non-Compliant.  Issues related to the availability of accounting records had a significant impact on exchange of information in practice, since this type of information could not be obtained in 40 out 48 cases. All these cases related to companies operating outside Panama.  Panama should ensure that reliable accounting records, including underlying documentation, are being kept by all relevant entities and arrangements for a period of at least five years. 
   
Banking information should be available for all account-holders. (ToR A.3)
Determination Factors Recommendations
The element is in place.      
Phase 2 Rating Factors Recommendations
Compliant.     
Competent authorities should have the power to obtain and provide information that is the subject of a request under an exchange of information arrangement from any person within their territorial jurisdiction who is in possession or control of such information (irrespective of any legal obligation on such person to maintain the secrecy of the information). (ToR B.1)
Determination Factors Recommendations
The element is in place.      
Phase 2 Rating Factors Recommendations
Non-Compliant.  In the three-year review period, Panama’s competent authority’s practice was to request information only from the resident agent of companies or foundations operating entirely outside Panama regardless of whether the resident agent was obliged to keep the information sought. Information was not requested directly from the companies or foundations. This resulted in the competent authority not always obtaining all information.  Panama should ensure that the access powers of its competent authority are fully utilised to obtain all information included in an EOI request from any person within their territorial jurisdiction that has possession or control of that information. 
Panama has not applied any penalties in the three-year review period, even where information should have been in the possession of the persons within its territorial jurisdiction and in practice the penalties available would not appear to be effective against entities that operate exclusively outside Panama.  Panama should review its penalty provisions to ensure its access powers are supported by adequate penalties for failure to provide information to the competent authority in a timely manner. 
The rights and safeguards (e.g. notification, appeal rights) that apply to persons in the requested jurisdiction should be compatible with effective exchange of information. (ToR B.2)
Determination Factors Recommendations
The element is in place.      
Phase 2 Rating Factors Recommendations
Compliant.     
Exchange of information mechanisms should provide for effective exchange of information. (ToR C.1)
Determination Factors Recommendations
The element is in place.   Four of Panama’s 25 agreements establish identification requirements for the person concerned and/or the holder of information which are inconsistent with the standard for effective exchange of information.  Panama should ensure that the identification requirements in all of its agreements are in line with the standard for effective exchange of information. 
Phase 2 Rating Factors Recommendations
Compliant.     
The jurisdictions' network of information exchange mechanisms should cover all relevant partners. (ToR C.2)
Determination Factors Recommendations
The element is in place, but certain aspects of the legal implementation of the element need improvement.   Panama still does not have EOI agreements with many relevant partners. While significant progress has been made over the last year, having regard in particular to Panama's request to sign the Multilateral Convention, no new agreements were signed during the last twelve months.  Panama should enter into agreements for exchange of information (whether DTCs, TIEAs or multilateral instruments) expeditiously with all relevant partners, meaning those partners who are interested in entering into an information exchange arrangement with it. 
Phase 2 Rating Factors Recommendations
Partially Compliant.     
The jurisdictions' mechanisms for exchange of information should have adequate provisions to ensure the confidentiality of information received. (ToR C.3)
Determination Factors Recommendations
The element is in place.      
Phase 2 Rating Factors Recommendations
Largely Compliant.  The disclosure during the period under review to third parties of the name of the taxpayer in cases where this was not necessary for gathering the requested information is not in accordance with the principle that information contained in an EOI request should be kept confidential. Panama has changed its practice in this regard. However it should be noted that this change is very recent (March 2016) and so it remains to be seen whether this will operate in practice in conformity with the confidentiality requirements of the international standard.  Panama should monitor that a disclosure of details such as the name of the taxpayer in certain circumstances does not exceed the confidentiality requirements as provided for under the international standard. 
The exchange of information mechanisms should respect the rights and safeguards of taxpayers and third parties. (ToR C.4)
Determination Factors Recommendations
The element is in place.      
Phase 2 Rating Factors Recommendations
Compliant.     
The jurisdiction should provide information under its network of agreements in a timely manner. (ToR C.5)
Determination Factors Recommendations
The assessment team is not in a position to evaluate whether this element is in place, as it involves issues of practice that are dealt with in the Phase 2 review.      
Phase 2 Rating Factors Recommendations
Partially Compliant.  During the review period, governmental changes and changes in the set-up of the tax authorities impacted on the organisational structure and processes of the tax authorities including the EOI Unit. In 2014 this coincided with an increase in the number of incoming EOI requests and an understaffing of the EOI Unit that existed throughout the review period. These circumstances led to EOI requests not being processed in a timely manner in the second half of the review period.  Panama should ensure that it has appropriate organisational structures and processes in place to process and answer to EOI requests in a timely manner. Panama should also endeavour to improve its resources to ensure that all EOI requests are responded to in a timely manner. 
The postal service in Panama does not ensure door-to-door delivery of regular mail with the result that requests have not been received by the competent authority. Panama also does not accept requests by encrypted e-mail. This has led to confusion and delays in responding to requests from peers that are not familiar with the peculiarities of Panama’s mail service.  Panama is recommended to communicate with its EOI partners about its processing requirements that effectively limit sending the requests to written letters that have been sent via registered mail or courier. Panama is encouraged to accept the use of encrypted e mail for future EOI incoming and outgoing requests. 
Panama did not systematically provide updates where it was not able to respond to a request within the 90 days period.  Panama should provide status updates to its EOI partners within 90 days where relevant. 

Earlier self-assessment based annual reports entitled Tax Co-operation 2010: Towards a Level Playing Field are also available.