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Republic of Panama
Ministry of Economy and Finance
Office of the Viceminister

December 6, 2002

To the Honorable Mister
Donald Johnston
General Secretary of the
Organization for Economic
Cooperation and Development (OECD)
2 Rue André Pascal
75775, Paris Cedex 16,
French Republic

Mister General Secretary:

The Government of the Republic of Panama has had knowledge the Presidency of the European Union submitted, on the last December 3, a proposal on tax matters to the Member States that would grant certain European Union member countries – also members of the OECD – a special and different treatment in regard to the commitments of "non-OECD" countries – among them the Republic of Panama – have subscribed to allow them to be included in the Global Forum efforts over Transparency and effective tax information exchange promoted by OCDE.

Giving heed to the reports by the international media, the National Government understands that the Presidency of the European Council is proposing that Austria, Luxembourg and Belgium would not have to interchange tax information under the same parameters applied within the OECD until January 1, 2011. As understood by the National Government, the Swiss Confederation would receive a similar treatment.

For the National Government a situation such as the one reported is, Mister General Secretary, at least worrisome.

As you know, the National Government when it signed its letter of agreement with the OECD last April 15, 2002, clearly stated that its participation would be based, among other things, in that, "…materialization of the initiative proposed by the OECD guarantees equity and non-discrimination among all countries and jurisdictions, whether members or not of the OECD…".  This summarizes the application of the "level playing field" principle, so promoted by the General Secretariat of the OECD.

Confirming now that out of the OECD's Global forum over transparency and exchange of tax information, almost half its organization members are initiating negotiations to subscribe agreements over the same matter with the purpose to generate, among them, special and different conditions in regard to non-member countries and jurisdictions that directly compete with them in foreign promotion of financial services and who have subscribed a serious compromise to try and reach common parameters, puts in doubt the seriousness of their participation in the Global Forum and also their credibility.

The National Government would consider wholly unacceptable that, within the European Union, members of the OECD that demand from other sovereign States – such as the Republic of Panama – cooperation on tax matters under threat of imposing "coordinated defensive measures" if they don't, plus perpetuating the policy of derogative marks as "damaging tax havens", give to other OECD members, specifically Switzerland, Belgium, Austria and Luxembourg, obvious preferential conditions.

Mister General Secretary, the National Government also will not accept as a valid justification for such actions, the fact that they are internal policies of the European Union. As members of OECD, all the countries of the European Union and Switzerland, even if they could have presented objections, or not adopted the OECD reports of 1998, 2000 and 2001 about damaging tax practices, know very well the parameters, conditions and objectives agreed upon in the Global Forum over transparency and exchange of tax information. Any kind of action, among themselves or with third parties, that modifies in any way the application of the dates and compromises agreed upon for the future, in such a way that may create more favorable conditions in regard to "non – OECD" countries and jurisdictions, will be understood unilaterally and with all right, by the Republic of Panama as applicable to itself.

In conclusion, the National Government makes a call to the General Secretariat and to the members of the OECD toward clarifying, as soon as possible and with all detail, the consequences of the initiatives proposed by the Presidency of the European Council will have in regard to the good development of the Global Forum on transparency and exchange of tax information. Lack of clarity and transparency on the part of the OECD toward all those that –like the Republic of Panama - have taken the difficult decision to cooperate, will deeply affect the credibility of the forum and its promoters.

With nothing further, I remain awaiting the prompt answer of the General Secretariat and avail the occasion to express the assurances of my esteem.

Sincerely,

Domingo Latorraca M.
Viceminister of Economy

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