Sept 27, WASHINGTON The United States and Panama are in talks on a tax evasion agreement, the U.S. Treasury Department said on Friday, a sign of U.S. progress in implementing a crackdown on U.S. tax cheats.
The Foreign Account Tax Compliance Act (FATCA), enacted in 2010, takes effect in July 2014. It requires foreign financial institutions to tell the U.S. Internal Revenue Service about Americans' offshore accounts worth more than $50,000.
The United States does not have a full tax treaty with Panama, which has been listed in recent years by global authorities as a tax haven. But the United States and Panama did sign a tax-information exchange agreement in 2010.
The Panama talks mark a significant step for FATCA implementation because they demonstrate Treasury officials are going to the heart of the offshore tax evasion problem, said Alan Granwell, a former Treasury official now with law firm DLA Piper who is advising foreign governments on FATCA deals.
FATCA was enacted after a Swiss banking scandal showed U.S. taxpayers hid sizeable fortunes overseas from tax authorities. The Treasury has said previously it is in varying stages of FATCA negotiations with more than 50 countries.
The United States is Panama's largest trading partner. The Panamanian government said on Sept 18 on its website that it is working on a draft proposal for a FATCA deal, which it hopes to finish as soon as possible.
Banks, funds and other financial institutions that fail to comply with FATCA face a 30 percent U.S. withholding tax on their U.S. source income, a penalty that could effectively freeze them out of U.S. financial markets.
Panama, Belize and Costa Rica are three Central American countries the Organization for Economic Development and Co-operation has tagged as tax havens in the past.
Panama and other countries with very low taxes "historically may have had bank secrecy," Granwell said.
In August, the U.S. Treasury completed a FATCA deal with the Cayman Islands, perhaps prompting other low-tax nations to accelerate their talks with Treasury.
The United States already has FATCA deals with big trading partners such as Britain and Germany. The pacts are expected to help banks in those countries comply, Granwell said.
The Treasury has concluded nine FATCA intergovernmental agreements (IGAs) with foreign governments, but it is struggling to complete deals with China and Canada, leaving two potentially gaping holes in the FATCA dragnet, tax experts said
"There is a lot of tension between the U.S. and Canada," said Bruce Zagaris, a partner with the firm of Berliner, Corcoran & Rowe LLP who is advising foreign governments on FATCA.
"The Canadians have been really exasperated by the inability of the U.S. to have more concessions" for FATCA, he said.
The Canadian Department of Finance told Reuters this month that it hoped to sign an IGA in the near future.
In July, the Treasury postponed the start of FATCA to July 2014 from January 2014, in part to give U.S. negotiators more time.
(Additional reporting by Louise Egan in Ottawa; Editing by Kevin Drawbaugh and Steve Orlofsky)