Panama Tax Recovery: How to take advantage of the transitional measures of Law 401?

The regulations allow for the authorization to extend until December 31, 2023 the previously signed payment agreements and covenants.

Panama is going through the last quarter of 2023 with a changing and quite dynamic context from the regulatory point of view. During this period, the mining contract between the country and First Quantum Minerals was declared unconstitutional, amidst citizen mobilizations demanding the prohibition of metallic and open-pit mining activities. ProPanama is created, an authority focused on attracting foreign investment and promoting exports, and Law 401 is enacted, which introduces transitory measures for tax recovery and a special transitory treatment of abbreviated taxation.

Este marco normativo que permite declarar prescritas de oficio las deudas tributarias para las personas naturales y jurídicas ha pasado inadvertido, pese a incluir medidas que pueden resultar beneficiosas y oportunas para gestión y exoneración de multas, como la aplicación a descuentos de pronto pago.   

Karina Castillo, asociada de Quijano and Associates, destaca que la Ley No. 401 introduce “nuevos conceptos para la recuperación tributaria”, desplazándose del enfoque tradicional que se centraba en “el establecimiento de exoneraciones, condonación de multas, recargos e intereses, e incentivaba a la formalización de convenios y acuerdos de pago”.

Law No. 401 establishes a series of Transitory Tax Recovery Measures, among which “the possibility of declaring tax debts ex officio prescribed for individuals and legal entities” stands out.

In addition, the lawyer highlights other elements such as “Transitory Abbreviated Tax Procedures” and “General Tax Regulation Rules that include exonerations, remission of fines and discount for prompt payment”. It also states that the law allows the authorization to extend until December 31, 2023 the agreements and payment arrangements previously signed.

To understand this new special treatment, it is essential to explore the key aspects that taxpayers must take into account. According to Castillo, these aspects include:

“The individual or legal entity that wishes to avail itself of said procedure must formalize a request before the General Revenue Directorate, accompanied by a certification countersigned by an Authorized Public Accountant. The request must be attended within a term not to exceed sixty calendar days after receipt of the request”. Furthermore, “in no case does the non-issuance of a response within the term indicated entail a positive administrative silence”, he emphasizes.

Next, Karina Castillo, an associate at Quijano and Associates, outlines the complexities of Law No. 401, revealing the opportunities and challenges in Panama’s tax environment.

How are these measures expected to impact taxpayers in the short term?

Karina Castillo: The purpose of these measures is to collect taxes, including those that have not been paid by taxpayers. At the same time, these transitory measures provide taxpayers with the facility to voluntarily comply with their obligations with certain benefits that, in the short term, represent savings in the payment of their taxes.

What does the special transitory treatment of abbreviated tax audit, management and tax debt consist of?

The Transitory Procedure of Abbreviated Audit consists in that the taxpayer who is being subject to an audit or at the request of a party may request that an abbreviated audit be applied for the review of income taxes, educational insurance, notice of operations and ITBMS, with which he may rectify his direct and indirect tax returns without applying the terms of restriction provided in the Tax Code, prior authorization of the General Directorate of Revenue.

What is the special treatment that the Law grants to the tax debt? How can taxpayers effectively manage their debt under these provisions?

The special treatment granted by the Law regarding the tax debt to the taxpayer is that it may prescribe informally those debts in respect of income tax, educational insurance and/or operation notice corresponding to the fiscal year 2015 or prior, provided that the subsequent fiscal years, i.e. 2016 onwards, have not been reported or without operations or with losses.

This regulation grants a series of benefits to taxpayers, who have the possibility of regularizing their debt through the procedures established in the Law, starting from the point that they can enjoy an automatic statute of limitations or establish a payment arrangement and/or agreement with which they will have flexibility as to the amount of the initial payment with terms of up to 48 months to cancel their tax debt.

Which sectors or types of taxpayers will be most affected or benefited?

This type of measure has a positive impact on many taxpayers, especially micro, small and medium-sized companies, which due to their organization and/or administrative structure often find it difficult to meet their tax obligations within the established periods, generating surcharges, interest and fines.

What are your main recommendations for businesses to maximize the benefits of the new legislation?

Among the recommendations that we could provide to taxpayers to maximize the benefits are:

• Update each of the items to which they are subject to tax charges, depending on whether they are individuals or legal entities.
• Once each one of the items is updated, analyze with an expert in the matter the charges generated for each item.
• Perform an analysis of the amounts to be cancelled with the application of the discounts granted for prompt payment.
• To have legal and accounting advice to accurately formalize the applications for these benefits.
• For taxpayers who have signed payment agreements and arrangements, restructure them to comply with the terms and conditions previously established.

The original interview was conducted in Spanish, and may be read in Lex Latin’s website: https://lexlatin.com/entrevistas/recuperacion-tributaria-panama-medidas-transitorias-ley-401