Panama City is only a short flight from the Colombian capital, but a world apart when it comes to dealing with international banking regulations and those looking to stockpile “off shore” investments.

Considered one of the world’s primary tax friendly nations, the small Central American country is home to 120 commercial banks and 285,000 companies registered there for its stringent asset protection laws and banking secrecy act. But the Colombian government wants to delve deeper into what its citizens are doing there, and which Colombian-owned companies are using Panama’s “off shore” status to evade taxes at a time when the Colombian government is proposing a reform to its taxation regime, in Congress, and in order to assure much-needed revenues at a time when oil and gas reserves are falling due to sluggish exploration and weak oil prices worldwide. Oil earnings are responsible for about one fifth of the Colombian government’s revenue and is this nation’s biggest exporter generating $370 billion in foreign exchange.

As an immediate consequence Wednesday of including Panama in its official list of “tax havens,” the rate of money transfers will rise from a current 10 percent to 33 percent and Colombians will no longer be able to deduct purchases made in Panama on their income-tax returns, stated Santiago Rojas, director of Colombia’s Taxation and Customs Department: DIAN.

The inclusion of Panama on the Colombian list, came after the Panama failed to meet a deadline Tuesday for the signing of a bilateral taxation and information sharing agreement. Currently on the Colombia’s “tax haven” list are the island states of Barbados, Bermuda, Anguilla, Cayman Islands, Cyprus, as well as the British Virgin Islands, the Isle of Man, Jersey, and Liechtenstein.

The Panamanian government has threatened to file a formal complaint against Colombia with the World Trade Organization if it continues to designate it as a tax haven. As the Colombian government continues to define a possible peace with the Revolutionary Armed Forces of Colombia (FARC) guerrillas, it will need more revenue in order to assimilate former combatants back into civilian life, as well as finance large-scale infrastructure projects and social development, currently under review in a five-point peace agenda.

Facing a high taxation scale in Colombia, many of the nation’s companies have set up accounts in Panama to generate equity and keep their banking records secret. On Wednesday, representatives of Colombia’s business sector also met with the government to propose extending only for one more year the dreaded banking surcharge 4 x 1000 – which has been in effect for more than a decade – and in which private citizens must surrender from their accounts, 4 pesos for every 1000 deposited. Already burdened by a high taxation bar, as well as obligatory welfare packages of state health plans, pensions and worker’s accident compensation, many Colombian companies have relied on Panama for their subsidiary holding offices. With the “taxation” dispute between the two nations heating up, the issue now rests directly with both finance ministers who recently met in Washington to settle their disagreements in a conciliatory manner, as their relationship is too lucrative to turn sour. Panama as its second largest direct foreign investor in Colombia after the United States.