PANAMA Trends and Developments Contributed by: Rafael Rivera, BDO Legal Panama
in Law 526. This credit shall not be subject to refund, assignment, or transfer under any title whatsoever. Which entities are excluded from the application of this special regime applicable to passive income? The regime excludes entities belonging to a multina - tional group that qualify as financial entities subject to supervision by: • the Superintendency of Banks of Panama; • the Superintendency of the Securities Market of Panama; • the Superintendency of Insurance and Reinsur - ance of Panama; and • any other competent financial supervisory authority in the Republic of Panama. Likewise, entities engaged in the commercial opera - tion of ships or vessels under Panamanian registry governed by the special merchant marine legislation, including ship owners, operators, and administrators, are also excluded. Such entities must demonstrate economic substance by complying with the following three conditions: • being registered before the competent authority or authorised by the Panama Maritime Authority (AMP); • carrying out activities supervised by the AMP; and • foreign-source passive income subject to this exclusion must be directly and effectively linked to the regulated maritime activity, including returns derived from the placement of surplus cash, reserves, or guarantees associated with the opera - tion of vessels or ships. The regulation contemplates the possibility that the Ministry of Economy and Finance, in co-ordination with these supervisory authorities, may verify, at any time, compliance with the economic substance requirements applicable to these entities. These exclusions are based on the premise that the aforementioned regulatory authorities have access to information regarding economic substance, person - nel, assets, risks, resources, and expenses incurred by their regulated entities. However, it is clear that the supervisory approach of each sector differs, and
in no way resembles the tax information upon which taxable net income is determined in accordance with the provisions of the Tax Code. Therefore, it is highly likely that this exception rule may be challenged when Panama’s status as a non- cooperative jurisdiction is reassessed at the European Union level. This is a specific technical tax matter, either the Panamanian Tax Administration has access to the information necessary to conduct an adequate audit of the taxation of such passive income, or it does not. To avoid this outcome, all exempt entities must comply with the same standard of inclusion and annual reporting of information, and such information must be made available in a uniform manner across each regulated sector. What are the new rules applicable to companies operating under special regimes and legal stability in Panama? Entities and companies incorporated under Panama - nian law that are members of multinational groups, benefit from preferential tax regimes, and are required to file annual economic substance returns must also report to the General Directorate of Revenue ( Direc- ción General de Ingresos ‒ DGI), within their sworn income tax return, all income derived from foreign- source passive income and evidence their status as qualified entities. Such substantiation shall require demonstrating adequate economic substance with respect to each asset generating foreign-source passive income, as an indispensable condition for such income not to be subject to taxation in Panama. Failing this, such income shall be subject to income tax as provided under Law 526. Why is an anti-abuse clause included in Law 526? A general anti-abuse clause is introduced, granting the Ministry of Economy and Finance the authority to disregard, through a duly reasoned resolution, any structure, arrangement, or legal form whose principal purpose, or one of its principal purposes, is to obtain a tax advantage that is contrary to the object and purpose of the regime applicable to foreign-source passive income.
844 CHAMBERS.COM
Powered by FlippingBook