By Alvaro Tomas

August 2015

It turns out Argentina vehemently opposed Panama’s advance to the second phase of the OECD’s Global Forum, and, despite great efforts made by the private sector and the government to pass a package of laws that would emphasized the commitment of our country to the transparency demanded by the modern world, we will remain in the gray list for the time being. As a member of the group called G-20, another powerful forum created by OECD countries, Argentina had the necessary weight to affect Panama. Remember that we are currently engaged with the Argentines in a lawsuit before the WTO, which to our understanding we won, since Cristina Kirchner’s government broke rules by discriminating against Panamanian imports of goods and services. This was, for sure, a payback. I just changed my personal position on who the righteous owner of The Malvinas is.  Hey… The Falklands are British.

The double standard of the United States and its European acolytes, members of this elite club called the OECD, never ceases to amaze me. An article published in the Guardian on August 11^th of this year by Juliette Garside and entitled Google’s Alphabet restructure could get boost from Delaware tax loophole, clearly outlines the tax benefits given to multinational companies such as Google by being established as Delaware corporations. More than 1 million companies are registered to the address 2711 Centerville Road Wilmington, Delaware. Giant companies like Google, Toys R Us and Kmart have decided to settle in this state for one reason: the tax advantage it brings to its coffers.  It is as simple as that.

Delaware’s tax code, among other tax advantages, in section 1902 (b) (8) exempts any taxes on companies whose activities are intended “to the maintenance and management of their intangible investments … and the collection and distribution of income resulting from use of these intangibles or tangible property located outside this state”.  The reporter notes: “Essentially, companies without operations in Delaware do not pay taxes there.” My question is: how is that different from Panama? Why is it easy and acceptable for companies that do not operate in Delaware to establish there in order to pay less taxes, but the same is not acceptable in Panama? Where are Gurria and Saint-Amans from the OECD? My grandmother said, “He who pays the band rules the party” and saying anything to the Americans would be unacceptable because it would end their lavish lifestyles of bureaucrats riding limousines, Hermes ties, fine restaurants and air-conditioned offices.

How does this mechanism called the “Delaware Loophole” work? Simply the Delaware company becomes the owner of the intellectual property of its entire group and the subsidiaries have to pay royalties that are not taxed in Delaware and are considered deductible expenses for said subsidiaries. This is called providing a competitive advantage to attract investment and jobs to Delaware. Why is it that Panama is not allowed to do this, but a state with 900 thousand inhabitants in the United States is?

By Alvaro Tomas

This past February, Australian lawyer Dr. Terry Dwyer wrote an extremely important article to help in the understanding of OECD’s attacks against countries such as Panama and what these attacks mean for the international legal order. The distinguished jurist resides and practices in a country that is a member of the OECD, the more reason why the letter, published in Offshore Investment and entitled The War on Privacy- can the OECD’s exchange standard be resisted? deserves special attention.

In 1998, the wealthy countries’ club (OECD) launched an offensive called “Harmful Tax Competition”. Since then, this evil organization led by the United States and its European sidekicks has violated international law and blatantly attacked the small countries who dare to break into the business of managing international assets. Unable to accept their inability to create economic and fiscal policies that address the financial collapse of their economies, they attempt to trample the sovereignty and right to self-determination of the social and economic direction of smaller countries.

The distinguished Panamanian colleague, Adolfo Linares Franco, an advocate of national sovereignty makes in this regard the following claims about the OECD: “In open violation of International Law, the OECD seeks to impose by force some so-called standards on tax matters in detriment of countries such as Panama for the sole purpose of putting them – OECD countries – ahead.  Panama should not fall into that game. We must denounce this outrage before the United Nations and demand respect for the principle of legal equality of the states. Not doing it and giving in, would surrender our sovereignty to the interests of the OECD which is unacceptable”.

Dr. Dwyer agrees with the position of Adolfo Linares as well as with the arguments of many lawyers and local economists: sovereign countries such as Panama are being forced to become tax collectors regardless of their sovereignty, their internal laws and probably violating in the process constitutional principles as fundamental as the right to privacy and the inviolability of documents and correspondence.

It seems absurd that an army of bureaucrats locked in their palatial offices in Paris, the OECD headquarters, where, paradoxically,  they are exempt from taxes, has gone so far towards the detriment of the sovereignty of many small nations. The latest move by the OECD, endorsed by other wealthy countries of the G-20 is to establish an automatic information exchange, which is equivalent to a form of financial intervention.

Quoting Dr. Dwyer: “Thus, logic and long-standing dual criminality norms, other countries income unenforceability laws, the respect of local laws on privacy and confidentiality have all come under attack by expert international bodies, not elected but rather designated by different tax bureaucracies. Somehow, these unelected bodies such as the Financial Action Task Force (FATF), the Global Forum on Taxation, the OECD and the IMF have self-appointed themselves as masters of sovereign governments. Many financial institutions do not seem to realize that their service sectors are under a real threat. Some seem to want to console themselves with the idea that there will be enough corporate work to compensate for the loss of working with private clients. ”

As it often happens in life, there are grays. Countries smaller than Panama such as Barbados in 2011 and most recently, The Bahamas, have told the OECD that they will not sign any standard agreement that will hurt their financial industry and that they prefer to sign treaties to avoid double taxation with countries that respect them as well as the international laws and agreements which bring them tangible benefits. Panama must not surrender to this abuse and should mount an aggressive strategy in defense of its sovereignty and national constitution. This has been the key to our success as a nation.

Yes, the world has changed. There is need for greater financial transparency and better due diligence practices. Panama is complying with this new reality as the new 23 Act of April 27^th, 2015 attests to, which extends, among other things, the need to know your customer to more than 20 industries that were previously unregulated. But we must accept that the world has not changed in other ways: as when the powerful countries want to impose their ideas and policies using a double standard without any regard for the consequences. Interventionism is still alive in the 21st century.