Consumption slows down and Panama enters the EU blacklist
Panama´s economy continues to grow with a real GDP expansion of 5.4% in Q3 and 5.6% from January to September. In YTD terms, growth was driven by transportation and communications, construction, financial intermediation and services to business.
The bad news was retail trade: following a 6.1% growth in Q1, it decreased 0.5% in Q3. Moreover, consumption activity in malls, car sales and restaurants showed a slowdown and, in many cases, a contraction. Media, politicians, and analysts wonder whether the official GDP figures reflect the reality of the country. In fact, while nominal GDP grew 8.8% in 2015 and 6.5% in 2016, final consumption (private and public) increased 5.3% in 2015 and 4.3% in 2016.We expect this downward trend to continue due to the slowdown of net disposable income.
On December 5th, The Republic of Panama, among other 16 countries, was included in the European Union list of non-cooperative jurisdictions in taxation matters. The aim of the EU list is to “promote good governance worldwide, to maximize efforts to prevent tax fraud and tax evasion”.
According to our sources, the EU Finance Ministers did not accept the commitment of the Panamanian government to implement changes in preferential tax legislations. It would not be surprising that Panama’s reputation after the Panama Papers scandal was a factor that influenced the EU Finance Ministers’ decision, given the public outcry in Europe for more tax transparency and the lack of Panama´s effective cooperation with information requested by France and Germany.
As of December 2017, Panama meets all requirements of the OECD tax cooperation standards. Panama is classified as “largely compliant” with the Exchange of Information on Request standard (EOIR), signed the Mutual Administrative Assistance Convention of the Automatic Exchange of Information standard (AEOI) and is a member of the Inclusive Framework on BEPS.
Panama has pledged to initiate automatic exchanges of financial information in September 2018. Financial institutions must issue their reports between June and July 2018, but for this to be possible, the DGI (Panama’s tax authority) must publish the list of all countries with which Panama has signed agreements for the automatic exchange of information (reportable jurisdictions). The next hurdle in the long trek Panama´s transparency efforts is the report by GAFI early next year.
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