The South American nation of Colombia does not have its own version of FATCA, but its government wishes it did. That's evident from its current tussle with neighbor Panama. The root of the problem between the two nations is FATCA-style reporting of bank data, or the lack thereof. Colombia wants it badly; Panama wants nothing to do with it.The current disagreement is with Panama, which, on a Latin American scale, is the local Switzerland with a (relatively) thriving financial center. The result is:
So long as the banking sector is thriving -- and it is -- Panama's government doesn't care whether residents of other countries cheat on their taxes. The banks' position is that all nonresident clientele are free to self-report their interest income and it's not their fault when a Colombian client violates her country's tax laws. Nobody puts a gun the accountholders' heads and forces them to dodge taxes, although Panama's de facto bank secrecy certainly enables that outcome.For Colombia in particular,
Colombian law requires taxpayers to fully disclose bank deposit income regardless of where it was earned. But If a Colombian taxpayer failed to report his or her income from a Panamanian bank, the tax authorities would be very unlikely to detect the omission because of Panama’s lack of reporting. For practical purposes, the offshore account would remain a secret known only to the bank and the accountholder. Taxable income is thus concealed from Colombia’s revenue body with minimal risk.
The result of all this is tax enforcement on the honor system, without the traditional backstops of withholding or reporting. Predictably, noncompliance in Colombia is a massive problem. Officials in Bogotá estimate the revenue loss from nondisclosure of offshore bank income at $2 billion to $7 billion annually. Those are large numbers for a country Colombia's size.So, Colombia asked Panama to enter a Tax Information Exchange Agreement ("TIEA") which, would be FATCA-like, in requiring the reporting of bank account income for Panamanian accounts owned by Colombians. Panama, not surprisingly, said "no thanks."
Panama may be relenting in the spat, as the author reports.
The key point is that the world is moving toward more transparency in fiscal affairs. Over time, something like FATCA will be ubiquitous to require reporting to tax authorities initially in the developed countries but, eventually, very far out in the future, the world. People who want to rant and rave about FATCA are playing a losing game. But the focus of much of their angst is really the requirement of worldwide reporting on citizens, particularly those living outside the taxing jurisdiction. That is a different issue, but so long as the law in the US and elsewhere (including Colombia) have tax on worldwide income, FATCA and inter-country agreements achieving the same effect are required to backstop the tax system.