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Panama: Tax treaties

Edgar Herrera

In 2009, after a series of economic developments that focused mainly on the drive to increase international tax cooperation and transparency, Panama enacted a series of treaties destined to avoid double taxation and prevent tax evasion.

These so-called comprehensive treaties covered a broad range of income, including that generated from both active and passive investments. They were also the catalyst for amendments to the existing Panamanian Tax Code. The first of these amendments was made through Law 33 of 2010 and subsequent legal and executive regulations. The purpose of all the modifications was to:

  • allow access to the new treaty benefits; and,
  • apply new concepts and terms that deviated from existing Panamanian territorial taxation principles.

With the passage of time, the number of so-called comprehensive treaties has risen from one in 2010 to 20 negotiated in 2015, of which 15 are already in force. As a result, numerous law firms, accounting firms, commercial enterprises and individuals are currently immersed in the analysis, interpretation and application of these treaties. However, the Panamanian record of bilateral international instruments for the avoidance of double taxation goes back to the year 1987 with the exchange of notes between Panama and the US. This exchange, declared valid by the Panamanian Supreme Court of Justice, was the first of many international instruments signed by Panama to avoid double taxation on income derived from the provision of international transportation services.

This may not be surprising to many, as Panama has long been a critical hub for water and air transportation services. The former is due mainly to the Panama Canal; the latter to the ever-growing Hub of the Americas. Before this so-called new wave of comprehensive treaties to avoid double taxation, Panama had already signed treaties with the same objective with the US, Chile, El Salvador, Spain, France, Colombia, Peru, Russia, Argentina, the Netherlands, Uruguay and Cyprus. However, the difference is that the scope of the in-force treaties was limited to income derived from the provision of international transportation services.

Edgar Herrera

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