New law that creates temporary tax recovery measures in Panama

On October 9, 2023, Law No. 401 of October 5, 2023, was published in Official Gazette No. 25998, which created temporary tax recovery measures and a special procedure for abbreviated audits and management of tax debt. This Law establishes a special procedure and requirements allowing the General Directorate of Revenue (DGI) to declare time-bars on the collection of tax debt. It establishes an abbreviated audit procedure and payment facilities for tax debt.

TIME-BARRED TAX DEBT

Debt for income tax, educational insurance and notice of operation are declared time-barred by this Law, if they are duly debited from the taxpayer’s current account and correspond to the fiscal years of 2015 or earlier. However, the Law also establishes an exclusion for:

• The taxpayer’s outstanding debts, when the taxpayer has instituted as a withholding or collection agent (regardless of the type of tax withheld or collected).
• Debts covered by a judgment issued by a competent authority, which is duly enforced.
• Taxpayers who file debts corresponding to the fiscal years and periods of 2015 whose returns for the tax period of 2016 or later had been formalized without neither operations nor with losses.

In accordance with Article 4 of the Law, to benefit from time-bars on collections taxpayers must comply with the following requirements:

• To not be subject to investigation or conviction for tax evasion or fraud.
• To not be subject to an ongoing audit process or an appeal.
• Regular compliance with the formal and tax obligations inherent to the fiscal periods relating after the year 2016.

TEMPORARY ABBREVIATED AUDIT PROCEDURE

The Law introduces this procedure, which states that persons who are subject to an audit in progress at the entry into force of the Law or at the party’s request, regarding to income tax, educational insurance, notice of operation or tax on the transfer of moveable tangible property and the provision of services. They may request the application of the abbreviated audit procedure. However, the Law establishes an exclusion for this procedure for taxpayers who are subject to an audit related to the alleged commission of tax fraud or evasion (Article 11).
Those who decide to avail themselves of this procedure, may rectify their direct or indirect tax returns without applying the restrictions contained in the Tax Code of the Republic of Panama. It is important to note that taxpayers applying for the abbreviated audit procedure, they must submit:

• Formal application to the General Directorate of Revenue.
• Certification endorsed by an authorized public accountant, complying with the formalities of the General Directorate of Revenue, in which the preliminary verification of full compliance by the taxpayer is recorded.

GENERAL RULES FOR TAX REGULARIZATION

The Law, in addition to introducing time-barred tax debts and the temporary abbreviated audit procedure mentioned above, establishes general rules for tax regularization, in which we highlight the following:

• A discount rate of 25% to all taxpayers who, upon the entry into force of the Law and before November 30, 2023, pay 100% of the property’s tax corresponding to the 2024 tax period (Article 20).
• A discount rate of 25% to all taxpayers who, upon the entry into force of the Law and before November 30, 2023, pay 100% corresponding to the single rate corresponding to the 2025 tax period (Article 21).
• Forgiveness of 50% of all fines charged or not charged in the e-tax 2.0 system to taxpayers who, from the entry into force of the Law and until November 30, 2023, pay the remaining 50% of the fines (Article 22).
• Complete exoneration from fines applied by the DGI to taxpayers for late filing of the Declaration called Form 03 for the 2022 tax period and/or the sales form for the 2022 tax period. Sums already paid will not be refunded (Article 23).
• Regularization period until November 30 for all natural and/or legal persons and for tax delinquent properties to make the payment corresponding to the total of the balances owed, including fines, being exonerated from the total interest, surcharges caused, and penalties related to the enforcement process of collection (Article 25).

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Issa.Rodriguez@ariaslaw.com