Thursday, 14 April 2016

Panama: Expanded information requirements to avoid application of alternative minimum tax

Panama’s tax authorities issued an administrative decision on 2 March 2016, effective as from the following day, which requires taxpayers to submit additional information when requesting an exemption from the application of the alternative minimum tax (CAIR).

Corporate tax liability in Panama generally is assessed at the greater of a 25% flat rate on net income, or a 1.17% rate on gross taxable income under the CAIR. According to Panama’s tax rules, companies are required to calculate their income under the normal rules (i.e. gross income, less nontaxable income and allowable deductions) and under the CAIR (calculated on a percentage of gross taxable revenue), with the higher result of the two calculations generally considered to be the income tax liability for the year. However, taxpayers with net operating losses or an effective tax rate higher than the standard 25% rate may submit a request to the tax authorities to avoid the application of the CAIR for corporate income tax purposes.

The administrative decision expands the type of information a taxpayer must provide in such a request. In determining whether to grant a request, the tax authorities will conduct a review similar to a comprehensive audit that will require the taxpayer to demonstrate full compliance with its withholding tax obligations (among other factors) and provide detailed information on certain costs and expense accounts. The tax authorities will have six months to evaluate a request and decide whether to grant it.

Source: Deloitte