Panamanian Supreme Court suspends withholding tax

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  • Fri, 12/28/2018 - 14:21
  • Twitter @OJudicialPanama

The Administrative Chamber of the Panamanian Supreme Court temporarily suspended, and partially, two articles of a decree regulating the withholding of property tax by Banks, financial institutions, cooperatives, and other institutions, informed the Judicial Branch (OJ).

It deals with articles 8 and 9 of Executive Decree 362 of November 29, 2018, against which a contentious administrative nullity claim was presented by lawyer Ernesto Cedeño.

With the presentation of the magistrate Cecilio Cedalise Riquelme, and with the endorsement of the magistrates Efren Tello and Abel Zamorano, the Third Chamber of Contentious Administrative of the Supreme Court of Justice (CSJ), agreed to the request for provisional suspension of some of the already mentioned items.

The ruling suspends the effect of both provisions related to the retention of property tax by the banks of general license, financial institutions, cooperatives and other institutions that work in relation to this type of activities as of January 1, 2019.

The decision of the judges to order the suspension of the decree effects seeks to prevent "serious and notoriously difficult and impossible repair damage."

The suspension of the effects of the contested administrative act only operates in relation to all the financings that have been granted or will be made before the entry into force of Executive Decree 362, the Judicial Branch said on its website.

Through this Executive Decree, issued by the Ministry of Economy and Finance of Panama (MEF), the model for the withholding of property tax is regulated.

Law 66 of 2017 established the property tax reduction and the Executive defends it as the "most important reform to this tax in the last 40 years."

Accordingly, the ruling indicates that the other property tax withholding mechanisms for general license banks, financial institutions, cooperatives and other institutions that intervene or act as withholding agents will have normal effects when they enter into operation after of January 1, 2019.

The magistrates explain that Article 20 of Executive Decree 362 states that this legal norm has an area of execution or application as of January 1, 2019, "therefore, such regulation in none of its parts indicate that it will have retroactive effects regarding its validity and applicability before that date.”.

"It is evident that there is an alleged violation of the legal system, hence the partial suspension of the effects of Articles 8 and 9 of the Executive Decree already mentioned must be accessed," the magistrates indicated in their opinion.

The ruling cites an extract from the lawsuit in which Cedeño states that "if the act objected by the undersigned is not suspended, all residents of the Republic of Panama could be freely granted a retroactive tax discount, which has not even been authorized by any judicial authority, based on transactions materialized before it even came out, Law 66 of 2017. "

"These retroactive discounts would severely affect the assets of all citizens as of January 1, 2019," says lawyer Cedeño in his lawsuit.



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