Relations between Panama and Colombia remain tense as ministers fail to come to an agreement in the debate over Panama’s continued status as a tax haven.
Colombia’s Foreign Minister and Minister of Commerce travelled to Panama City on Friday to negotiate an agreement with Panamanian Vice President Isabel de Saint Malo, while trade ministers from both nations met in Bogota to settle an ongoing tax dispute.
While officials state that both countries are keen to come to an amicable conclusion and continue talks, the meetings finished without agreement.
At the heart of the conflict are an estimated $2 to $7 billion in losses for the Colombian government, which is already experiencing a fiscal gap of $6.5 billion, as citizens continue to hide money in Panama and other countries as a means of avoiding taxation. In an attempt to stop this activity, Colombia requested that Panama sign a bilateral tax information exchange agreement. When the Panamanian government refused, Colombia declared Panama’s status as a tax shelter by means of retaliation, meaning that money transfers to that country will be taxed with 33% rather than the normal 10%.
MORE: Colombia and Panama look to settle tax haven agreements
Last week Panamanian officials sent an official letter to President Juan Manuel Santos stating that if Panama were not removed from a list of countries declared as tax haven, that sanctions would be placed on Colombia, including imposition of VISAs for travel, and tax changes.
MORE: Panama gives Colombia one week ultimatum to revoke tax haven ban
In a response to Panama’s letter and threats of sanctions, Colombia countered saying that they are not requesting anything that other countries have not asked for before.
Panama sees Colombia’s actions as an attack from a country previously viewed as an ally.
While public support is firmly behind the Panama president Juan Carlos Varela, opinions are mixed in Colombia, with elements in the political and business worlds arguing that President Santos needs to rethink the drastic decision to mark Panama as a tax haven.
In response to the backlash, Colombian officials stated last week that the tax haven decree would be postponed until January 1 2015 to give breathing space for the debate.
According to Colombia’s Semana magazine, Colombia Foreign Minister Maria Angela Holguin stated that Colombia wants to “turn the page” on the disagreement and resume a friendly working relationship between the two neighboring countries, saying that Colombia was not asking anything Panama for anything not already requested by other countries.
Backlash in Panama
Unofficial reports suggest that some Panama banks are urging Colombian nationals to withdraw their funds before the situation intensifies and sanctions are drawn up between the two neighboring countries.
If imposed the retaliatory measures against Colombia would see the imposition of tariffs on domestic exports with a rise from 10 to 33 percent tax and Colombian Nationals could be made to apply for VISAS to travel for Panama for work or leisure. There is also talk of deporting thousands of Colombians who are living in Panama illegally and prisoners currently serving time in Panama.
Suggested sanctions would also see the cancelation of electric interconnection project with ISA and would stop Colombian companies from bidding for public projects within the country.
While both countries are keen to come to a mutually beneficial agreement, neither side appears prepared to back down without a fight.
Anti-Colombia sentiment was further fueled in Panama after news broke about a failed robbery attempt on Panama ex-Minster of Justice, Arnulfo Escalona, on October 16 by three Colombian nationals.
One Colombian was killed in an exchange of gunfire, and another two assailants were arrested.
MORE: Colombian killed in failed attack on Panama ex-minister.
Commenting on the trend of anti-Colombian sentiment, Panama’s Foreign Minister Jorge Ritter noted that “In the end the governments agree, and resentment remains in the villages.”
Sources
- Aumenta la tensión entre Colombia y Panamá (Semana)
- Warm no more (The Economist)
- Tax Haven (Wikipedia)