The Department of State has the honor to refer the Embassy of the Republic of Panama to the 

Agreement between the Government of the United States of America and the Government of the 

Republic of Panama for Tax Cooperation and the Exchange of Information Relating to Taxes 

(“the Agreement”), signed today, and to confirm on behalf of the Government of the United 

States the following understandings reached between our two Governments (“the Parties”): 

1.	 With respect to subparagraph 1(a) of Article 3 (Taxes Covered) of the Agreement, it is 

mutually understood by the Parties that the term “all federal taxes” includes the following 

taxes imposed by the United States: 

(a) Federal income taxes; 

(b) Federal taxes related to employment; 

(c) Federal estate and gift taxes; and 

(d) Federal excise taxes. 

2.	 With respect to subparagraph 1(b) of Article 3 (Taxes Covered) of the Agreement, it is 

mutually understood by the Parties that the term “all national taxes” includes the 

following taxes imposed by the Republic of Panama: 

(a) Income Tax 

(b) Real Estate Tax 

(c) Vessels Tax 

(d) Stamp Tax 

(e) Notice of Operations Tax 

(f) Tax on Banks, Financial and Currency Exchange Companies. 

(g) Insurance Tax 

(h) Tax on the Consumption of Fuel and Oil Derivates 

(i) Tax on the Transfer of Movable Goods and the Provision of Services 

(j) Tax on the Consumption of certain Goods and Services 

(k) Tax on the Transfer of Immovable Goods 

3.	 With respect to Article 9 (Costs) of the Agreement, it is mutually understood by the 

Parties that costs that would be incurred in the ordinary course of administering the 
domestic tax laws of the requested State shall be borne by the requested party when those 

costs are incurred for purposes of responding to a request for information. It is also 

mutually understood by the Parties that all other costs are considered extraordinary costs, 

and shall be borne by the requesting party. Examples of extraordinary costs include, but 

are not limited to, the following: 

(a) fees charged by third parties for research and copying documents; 

(b) fees for non-government counsel or experts appointed or retained, with the 

approval of the competent authority of the requesting Party, for litigation in the 

courts of the requested party related to a specific request for information; 

(c) fees and expenses of a person who appears for an interview, deposition or 

testimony relating to a specific information request. The fees and expenses will 

be the ordinary amounts allowed under the laws of the party in which the 

interview, deposition or testimony is held or taken. 

The competent authorities shall consult with each other in advance if extraordinary costs 

are likely to exceed $1,000, or in the case of subparagraph (c) of this paragraph, $100, in 

order to determine whether the requesting Party will continue to pursue the request and 

bear the cost. 

4.	 The Government of the United States of America and the Government of Panama intend 

that the Agreement enter into force as soon as is practicable following the enactment of 

any legislation by Panama that is necessary under its domestic laws in order for Panama 

to comply fully with the terms of the Agreement. The Government of Panama expects 

that this legislation will be enacted before the end of 2011. As soon as practicable after 

such legislation has been enacted, the Government of the United States and the 

Government of Panama intend to take such actions, including exchange of notifications, 

as are necessary to cause the Agreement to enter into force in accordance with its terms. 

5.	 The United States understands that, with respect to the necessary legislation referred to in 

paragraph 4, Panama intends to enact legislation requiring the identification of the 

owners of bearer shares. The United States further understands that such legislation: 

(a)	 will require resident agents acting for Panamanian entities to obtain and 

maintain in their records information sufficient to identify the owners of 

those entities, even in cases in which shares of those entities are issued in 

bearer form, including, where the owner is a legal person, information 

sufficient to identify substantial owners of that legal person. For this 

purpose, a resident agent will not be required to obtain and maintain 

information sufficient to identify substantial owners of legal persons in 

cases where the resident agent acts for a professional client that is part of 
an organization that is required to maintain information on such entities 

and that has agreed to make available such information to the resident 

agent when requested; 

(b)	 will require resident agents to produce ownership and client identity 

information in their possession in response to a proper request under the 

Agreement, whether with respect to newly-formed entities or entities in 

existence at the time the legislation is enacted; and 

(c)	 will require resident agents to obtain such ownership information with 

respect to entities existing at the time the legislation is enacted within a 

five year period from the date of the enactment of the law. 

6.	 It is mutually understood that under laws currently in effect, each party is authorized to 

obtain and exchange information, including information held by financial institutions and 

other fiduciaries, pursuant to a request under a tax information exchange agreement, 

regardless of whether the requested party has a domestic tax interest in such information. 

7.	 Under section 274(h) of the U.S. Internal Revenue Code, an individual may deduct from 

income expenses incurred with respect to attendance at a conference or convention held in 

Panama in the same manner and to the same extent the individual would be permitted to 

deduct such expenses with respect to attendance at a conference or convention held in the 

United States, provided that there is in effect between Panama and the United States a tax 

information exchange agreement meeting the requirements of section 274(h)(6). It is 

mutually understood that the Agreement is intended to meet those requirements. 

8.	 It is mutually understood that the entry into force of this Agreement does not prevent the 

Parties from discussing the possibility of an agreement for the avoidance of double taxation 

in the future. 

The Department has the further honor to propose, on behalf of the Government of the United 

States of America, that the present note and the Embassy’s affirmative reply thereto confirming 

that the Government of the Republic of Panama shares these understandings shall constitute an 

agreement between the two Governments on these points which shall enter into force on the 

same date as the Agreement. 

Department of State, 

Washington, November 30, 2010