[Editor's Note: The following post is by TDV Editor-in-Chief, Jeff Berwick]
There is a worldwide, concerted effort going on to shut down any way for people and corporations to escape the Western tax dragnet or even to get foreign citizenship and leave. It is being led by the US government and I have seen it countless times. I've now seen it so many times that I consider it to be nothing but fact.
I saw it in the Dominican Republic (DR), where it used to take only three years to get citizenship as early as six years ago. Then it was moved to four years. Then six.... seven. And, it now effectively takes eight years.
TDV Passportshas had dealings in the DR for years and we asked the top legal firm and government officials there what was going on. They told us, point blank, that the US government was forcing them to make it harder and harder for people to get a DR citizenship.
Now, why would they do that? Read on.
Then, in Paraguay, where TDV Passports also operates, they enacted an income tax for the first time in 2012. Prior to 2012 there was 0% income tax in Paraguay. Again, we asked our high level contacts in the country what caused the sudden change. They told us that, effectively, the US government had been behind a coup d'état that ousted the prior president in June, 2012 and forced them to institute an income tax (10%).
Now, why would they do that? Read on.
The most recent was in Panama, just last week on the day before New Year's Eve.
THE PANAMA TAX FIASCO
It was bizarre and caused a massive uproar the next day in Panama. In fact, it's repercussions are still being felt and it likely will cause major damage to the country of Panama.
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What occurred?
Late on December 30th, Law No. 120 of 2013 was passed, and two articles were included to amend the tax code. One states:
"Every natural or juridical, domestic or foreign, who receives any taxable income within or outside Panamanian territory, must pay taxes."
The law made it clear that those who are residents, citizens or companies in Panama will have to pay tax-based on their worldwide income instead of only Panamanian-sourced income.
This was massive news with massive repercussions for any Panamanian resident who had foreign income and, more importantly, the thousands of businesses who had moved to Panama mostly because of their non-taxation of foreign income.
The Panamanian business community went into a near panic and noted how the law had been passed while shrouded in secrecy. There was no discussion of the law whatsoever in public.
Realizing the disastrous potential results, the President tweeted amidst the outrage: "On territoriality and taxes if we need to repeal we'll repeal or what needs to be defined will be defined, but ample debate must take place."
The law was not even discussed in the National Assembly. There was no debate, no warning. Quite a double standard: laws don't need to be debated in order to be implemented, but "ample debate must take place" to repeal the law. Ah, the logic of government.
At 12:06 he tweeted this: "There is too much gossip and disinformation regarding tax territoriality. On the first week of January everything concerning that will be clarified."
On the same day, Mr. Luis Cucalón, Director of Autoridad Nacional de Ingresos de Panamá (Panama's version of the "IRS"), tweeted this:
"I was the one who proposed Arts. 2 and 3 of Law 120 and I made a mistake. We are not prepared for taxation of worldwide income." Then he quickly followed at 13:58 with: "I have requested Mr. President to repeal said articles, which he accepted."
That Panama's version of the IRS is "not prepared for taxation of worldwide income," should not make anybody with wealth in Panama feel comfortable. This only implies they plan to do so in the future. And, as they've displayed once before, it will come without warning nor debate.
The government ultimately announced on December 31 that the law will be repealed right away in the New Year.
The attempt by the Panamanian government to institute worldwide taxation, without debate, shows us how governments work. When they are in trouble, as governments all around the world are with their
historical sovereign debts, they will do whatever it takes to fleece you of more of your hard-earned income. And, it would not surprise us in the least if the US government was pushing for the change. The US government, after all, actually has 150 IRS agents in Panama spying on US citizens already.
Either way, Panama just shot itself in the economic foot.
Until now, Panama has been seen by international businesses and North Americans as a place of strategic financial importance. Panama allowed people from retirees to international companies a tax-enhanced place to live, do business and enjoy the benefits of the Panamanian tax code.
This tax code was the only reason Panama has enjoyed economic success in recent years. Its tax laws and business environment are directly responsible for this.
Now that the country has showed its cards - that it hopes to one day tax everyone and everything to the hilt - the Panamanian authorities can be assured people will begin looking to get their money OUT of Panama.
THE NEW VERY OBVIOUS TREND
This doesn't come as a surprise to us here at TDV. We have been warning for years that more and more governments will begin to clamp down on the ease of obtaining residency and citizenship and make it harder and harder for people to escape egregious taxation.
The US government realizes this the most because as they continue to clamp down on their economy and it continues to disintegrate more and more people are just choosing to leave. Up until now it has been relatively easy to re-organize your affairs internationally, all legally, and reap massive tax benefits (often 0%).
Seeing this the US government is pushing as many countries around the world as possible to do what it has already done, increase taxes (to make it less lucrative for people to internationalize) and also implement a worldwide income tax so that no one can get out of the tax dragnet.
Not to mention that the IMF just had in a recent report, “The sharp deterioration of the public finances in many countries has revived interest in a ‘capital levy’ – a one-time tax on private wealth – as an exceptional measure to restore debt sustainability.”
This will affect all Westerners, not just Americans. Because, up until recently, it was quite easy for non-Americans to expatriate to another country (preferably one with 0% income tax or where their income taxes aren't applicable to their income source), become resident there and effectively end up paying a 0% income tax rate. I've been doing that, all legally, since 2006 as a Canadian citizen who is resident of a Caribbean country that has no income taxes that apply to my income source.
I expect at some point Canada will too impose a worldwide income tax. At that time I will renounce my citizenship as I hold passports in other countries where they don't have income taxes that apply to me.
But, for Americans, things are going to get much worse very quickly. The Foreign Account Tax Compliance Act (FATCA) comes into effect in July, 2014 and is effectively a form of capital controls that will make it very difficult, if not impossible for any American to internationalize their assets and reap the legal tax advantages of doing so.
As will happen in any country that announces worldwide taxation, billions of dollars will now leave Panama. It doesn't matter that the law was repealed. The damage has been done.
In order to foster a strong business environment, a nation-state must have a clear and predictable policy. People need security about the future of tax law in their jurisdiction. Panama just stripped that from its population.
Is Panama going down the road of Cyprus?
Possibly one day (even likely). One thing is certain: Panama can no longer be trusted as a safehaven.
