MercoPress. South Atlantic News Agency

Colombia and Panama in retaliatory clash over tax haven controversy

Colombia's government on Wednesday declared Panama to be a tax haven after it failed to meet a deadline for signing a fiscal information exchange agreement

Panama on Wednesday rejected its inclusion on Colombia's list of tax havens and said it will take retaliatory action against its neighbor. Panama has “a competitive and sound tax system, and therefore the national government categorically rejects any tax-haven designation,” the Central American nation's Foreign Ministry said in a statement.

“The Economy and Finance, Trade and Industries, and Foreign Relations ministries work in a coordinated fashion to implement applicable measures against countries that discriminate against Panama,” it added without going into specifics.

Colombia's government on Wednesday declared Panama to be a tax haven after it failed to meet a deadline for signing a fiscal information exchange agreement, the director of the Andean nation's tax agency, known as the DIAN, said.

The inclusion of Panama on the list means that a tax on money transfers to the Central American nation will be raised from 10%t to 33% and Colombians will no longer be able to deduct purchases made in that neighboring country on their income-tax returns, Santiago Rojas said.

Referring to Tuesday's deadline for signing the agreement, Panama's Foreign Ministry said the country “cannot be forced to negotiate bilateral accords under the threat of imposition of discriminatory treatment.”

It went on to say that Colombia's decision “reflects a lack of understanding of the functioning of Panama's tax system, which has been endorsed by duly accredited international organizations,” it added.

Panama has informed Colombian President Juan Manuel Santos' administration that the information-sharing agreement it has been asked to sign would be detrimental to the country's position as an international corporate and financial center, according to the ministry.

It added that Panama City has proposed other mechanisms but that “unfortunately they've been rejected by Colombia.”

Panama had previously threatened to file a complaint against Colombia with the World Trade Organization if Bogota added its neighbor to the tax-haven list.

Colombia is seeking greater clarity about the amount of assets that its citizens are holding abroad so that information can be included in a tax-overhaul bill currently before Congress, Rojas said Wednesday.

Colombia's list of tax havens also includes Barbados, United Arab Emirates, Kuwait, Qatar, Anguilla, the Isle of Man, Cayman Islands, British Virgin Islands, Jersey, Andorra, Cyprus, Liechtenstein, Bermuda and Guernsey.

The tax-overhaul bill submitted to Congress aims to raise more revenue to fund post-conflict development projects envisioned in draft agreements reached in peace talks between the government in Bogota and the Revolutionary Armed Forces of Colombia, or FARC, guerrilla group.

Last month, the Colombian government and the FARC released the full texts of three draft agreements hammered out during the ongoing peace process in Havana.