Key aspects of the Tax Procedure Code
As of May 14, 2020, the provisions of the Tax Procedure Code relating to administrative tax evasion and criminal tax fraud in Panama came into force; establishing the conduct considered illicit, the competent authorities to investigate them and the procedural guarantees of taxpayers.
Difference between administrative tax evasion and criminal tax fraud
Article 6 of the Tax Procedure Code distinguishes between:
Administrative tax evasion: This occurs when a taxpayer engages in intentional actions or omissions to reduce, eliminate, or delay tax payments, provided the amount allegedly evaded is less than US$300,000.00, excluding fines, surcharges, and interest. Jurisdiction lies with the Tax Administration.
Criminal tax fraud: This occurs when the intentional conduct exceeds US$300,000.00 in a tax period. Jurisdiction lies with the Public Prosecutor’s Office, as it constitutes a potential criminal offense.
The essential element: intent
Panamanian law requires intent to commit tax fraud. This means there must be deliberate intent, fraud, deception, or misrepresentation to evade tax obligations. A simple accounting error, difference of opinion, or administrative oversight is insufficient.
Article 284 of the Tax Procedure Code states that tax evasion or fraud must be carried out “intentionally violating the law,” which obliges the Tax Administration to objectively demonstrate the taxpayer’s fraudulent intent.
In the case of Income Tax, the Tax Procedure Code requires, for the establishment of criminal tax fraud, that the taxpayer intentionally used fraudulent means to avoid paying or underpay said tax.
For the determination of fraud in the Tax on the Transfer of Tangible Personal Property and the Provision of Services (ITBMS), Article 285 lists the cases in which, upon verification, these are considered evasion or fraud.
While regarding Property Tax (IM), Article 286 lists the actions carried out by the taxpayer intentionally and with premeditation that are classified as criminal tax evasion or fraud.
Preliminary procedure before a criminal investigation
A special procedure is established before a criminal investigation for tax fraud can be initiated. When the Directorate General of Revenue detects possible indications of criminal tax fraud, it must:
- Prepare a technical report signed by the Director General of the Directorate General of Revenue and countersigned by a Certified Public Accountant from that Directorate.
- Submit this report to the Tax Administrative Court.
- The Tax Administrative Court must evaluate the report and issue a ruling within 30 business days.
- Await the Court’s evaluation and authorization before referring the case to the Public Prosecutor’s Office.
The Public Prosecutor’s Office may not initiate criminal investigations without the prior ruling of the Tax Administrative Court or if the Tax Administration’s report has been dismissed by the Tax Administrative Court.
Taxpayer guarantees and rights
The taxpayer must be considered compliant until conclusive evidence is presented against them. Among the main procedural guarantees are: (1) Right to be notified; (2) Right to defense; (3) Right to present evidence; (4) Right to challenge the evidence; (5) Right to due process.
The burden of proof rests with the Tax Administration to demonstrate the facts and provide sufficient evidence of the alleged fraudulent conduct.
Importance of evidence in tax fraud
Tax fraud cannot be presumed based on the existence of tax discrepancies or adjustments. The tax authority must prove:
- The existence of unlawful conduct.
- The malicious intent.
- The use of fraudulent means to evade taxes.
In this regard, the regulations explicitly state that the Tax Administration bears the burden of proof in cases of tax fraud.
The lack of sufficient evidence may result in the nullity of the proceedings.
CONCLUSION
Tax fraud regulations in Panama aim to combat fraudulent conduct against the National Treasury. However, given that these are punitive and criminal matters, investigations must be conducted in accordance with due process and the taxpayer’s constitutional rights.
Current regulations require the Tax Administration to clearly and objectively demonstrate the existence of intent. Furthermore, it must comply with the procedures for criminal tax evasion and fraud as regulated in the Tax Procedure Code and uphold due process guarantees.
At EVANS GROUP, we maintain our commitment to providing specialized legal advice and representation in tax matters, always ensuring the protection of our clients’ rights and guarantees.