In the Commerce Commission of the National Assembly, the reforms to the Tax Code should be analyzed starting this Monday, May 4, a measure that would contribute to Panama leaving the list of non-cooperative jurisdictions of the European Union.
The Star of Panama had access to the bill that will arrive this Monday to the deputies of the different benches in the Commerce Commission.
The discussion will take place in extraordinary sessions called this Thursday, April 30, by President José Raúl Mulino and which would last until June 4.
The president described these reforms as technical and that they will require meetings with the different groups before beginning their discussion.
Felipe Chapman, Minister of Economy and Finance, presented this Thursday before the plenary session of the National Assembly a bill that reforms the Tax Code with the objective of modernizing the income tax regime, reinforcing the principle of territoriality and raising transparency standards in the Panamanian tax system.
The bill establishes that multinational group entities must prove economic substance in the country so that their passive income from foreign sources maintains the current tax treatment.
Even those companies covered by preferential tax regimes that are not required to submit a declaration of economic substance must demonstrate their status as a “qualified entity” before the Ministry of Economy and Finance.
In this context, the proposal reinforces the principle of territoriality and seeks to discourage the use of structures without substance, that is, corporate schemes that do not generate operations or real economic value in the national territory.
The regulations incorporate a set of stricter control measures, including an anti-abuse clause that authorizes the State to ignore mechanisms or structures whose main purpose is to obtain undue tax advantages.
In those cases, when there are no valid commercial reasons to support the operation, passive income from a foreign source would be subject to a rate of 15% of the gross income, in addition to possible fines, surcharges and interest.
Likewise, reinforced information obligations are established. Entities must report annually, within their sworn income tax return, both the passive income obtained and the elements that prove compliance with the conditions of economic substance. This requirement applies both to those who generate income from a Panamanian source and to those who exclusively obtain passive income from abroad.
The project also strengthens the State’s verification mechanisms, providing greater institutional capacity to supervise regulatory compliance under a scheme of clear, equitable and predictable rules.
In terms of confidentiality, the initiative establishes that all information provided will be reserved and may only be used for strictly tax purposes. Its improper disclosure would entail administrative, civil and criminal responsibilities, except in cases of information exchange within the framework of international agreements signed by Panama.
Another of the key axes of the reform is the updating of the concept of permanent establishment, expanding the assumptions under which a foreign company is considered operating in Panama. This includes the provision of services, construction projects, supervisory activities or the use of facilities and equipment for extended periods, as well as the actions of representatives who conclude contracts on behalf of the entity.
The project also specifies that permanent establishments must pay taxes on income from Panamanian sources that is attributable to them, in accordance with current provisions, thus reinforcing the coherence of the tax system.
The authorities maintain that this reform responds to the need for Panama to move towards a more transparent and competitive tax model, amid its permanence since 2021 on the list of non-cooperative jurisdictions of the European Union, which implies risks for the country’s investment and reputation.
The Executive states in the regulation that the approval of this law in Panama will send a clear signal to the international community about the country’s commitment to transparency, cooperation and the prevention of harmful tax practices, while promoting a change in the investment profile towards structures with real economic presence, generation of qualified employment and greater added value.
The rule, if approved, will come into force from the fiscal period following its promulgation and will be regulated by the Executive Body.
