Panama Firms At Risk From New VAT Interpretation

by Mike Godfrey, Tax-News.com, Washington

07 June 2005

All firms which prior to 2005 were exempt from value added tax in Panama are affected by a new interpretation of the country's Tax Code by the tax authorities, according to business services firm Deloitte.

In a little publicised move last month, Panama’s Revenue Office circulated a series of opinions which stated that a recent tax reform has abolished all VAT exemptions and special treatment given prior to February 2005.

The new interpretation centers on paragraph 26, article 1057-V of Panama’s Tax Code which, although the wording is the same as the original draft passed in 1976, the Revenue Office has taken to be a new law after it was reproduced in a major reform approved in February 2005. Therefore, according to the Revenue, it is effectively a new law, which can be interpreted differently to the 'old' legislation.

Consequently, Deloitte has warned that output VAT could now be charged on clients previously exempted. Similarly, input VAT may also affect previously exempted taxpayers.

Deloitte has urged firms to give the issue urgent attention, particularly as VAT returns are filed to the Revenue Office on a monthly basis.

Recommended