In an official letter to OECD Secretary-General Angel Gurria, the Government of the Republic of Panama has expressed its intention to sign the Convention on Mutual Administrative Assistance in Tax Matters (the Convention) to strengthen its commitment to international information exchange standards and requirements.

Background on the Convention

The Convention was developed jointly by the Organisation for Economic Co-operation and Development (OECD) and the Council of Europe in 1988. In 2011, it was amended by protocol to open it up to all countries and to align it with the international standard on the exchange of information on request. The revised Convention has been signed by 98 countries and other jurisdictions.

The Convention provides a basis for several forms of mutual administrative assistance in tax matters, including:

— Exchange of information, which may be on request, automatic¹ or spontaneous, and will apply to any foreseeably relevant information for the administration or enforcement of domestic laws concerning covered taxes
— Simultaneous tax examinations
— Tax examinations abroad
— Tax recovery
— Service documents

The Convention also serves as a possible international legal framework to implement the standard for automatic exchange of information in tax matters, including the Model Competent Authority Agreement (Model CAA) and the Common Reporting Standard (CRS), which contains the reporting and due diligence requirements for the automatic exchange of information for financial accounts.² It also provides a possible international legal framework to implement the Multilateral Competent Authority Agreement for the automatic exchange of Country-by-Country reports (CbC) developed by the OECD as part of the Base Erosion and Profit Shifting (BEPS) project.

Implications and next steps for Panama

Signing the Convention will broaden Panama's obligations with respect to the exchange of information upon request, while expanding Panama's treaty network simultaneously with the 98 jurisdictions that have joined the Convention.

The Republic of Panama will need to sign mutual agreements with other parties to the Convention to implement the standards relating to the automatic exchange of information. Panama remains committed to the automatic exchange of financial information bilaterally with those countries with which it has a Competent Authority Agreement.

The next step for the Republic of Panama is to officially sign the Convention and, subsequently, have it approved by the Cabinet Council and ratified by the National Assembly of Panama. No announcement has been made on the estimated timeframe for this to occur.

At this time, the Republic of Panama has not made public whether it will reserve the right not to provide some assistance with respect to tax examinations abroad, tax recovery and the serving of documents, as provided in the Convention. A follow-up Tax Alert will be issued once this information is available.

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ENDNOTES

¹ The Convention conditions the automatic exchange of information to the signing of a mutual agreement — e.g., Model CAA, CRS and CbC.

² See Tax Alert 2014-1450. The Model Competent Authority Agreement serves as a model for intergovernmental agreements and the CRS contains the reporting and due diligence standard that underpins the automatic exchange of information of financial accounts.