Law N° 33 of June 30^th, 2010  was published on Official Gazette N° 26,566 –A of the same date, whereby a Chapter is added to the Fiscal Code, containing norms of adaptation to the Treaties or Covenants in order to avoid International Double Taxation, and adopts other measures. Following, a summary of the content of such norms.

I. Norms of adaptation to the treaties or Covenants in order to avoid International Double Taxation:

Among the principal provisions introduced by this new law, we can mention the following:

• The principle of free competition to value the operations that the taxpayers make with related parties is developed and the methods to apply it are established;
• The concept of “related parties” is defined;
• Powers are granted to the General Directorate of Revenues to verify whether the operations made are those approved;
• The scope of application subject of these provisions are defined;
• The  comparability analysis of the operations is defined;
• The specific treatment applicable to the services among related parties is established;
• The simultaneous verifications and the general principles of information and documentation are established;
• Concepts of permanent establishment and fiscal residence are defined.

It is established in this law that these provisions are applicable to the Treaties or Covenants to Avoid International Double Taxation. Currently, the Republic of Panama has signed two treaties of this kind, with Mexico and Barbados, and it has negotiated Treaties with Italy, Portugal, Spain, France, Holland, Belgium, Luxembourg and Qatar, which shall be signed soon.

II. Fiscal Code:

• The rules to calculate the Income Tax on the sale of real estate are modified;
• An incentive in the transfer of real estate related to the agricultural activity is given, as well as those intended to the housing use located in rural areas with a property value of up to B/. 10,000.00, fixing the sole and definitive rate of the Income Tax to be paid on the capital profit on 3%.
• Paragraph n is added to Article 701 in order to determine the income of the companies of international maritime transportation, which are considered as of Panamanian source.
• The franking machines operators companies shall receive a commission or discount of five per cent (5%) on the franked amount.
• Some provisions on application of the property and services transfer tax (ITBMS, by its acronym in Spanish) are modified.
• Provisions that regulate the special proceeding for the coercive collection of the national taxes.

III. Sundries provisions

• The nonprofit associations shall keep updated all donors of its institution or organization on a monthly basis, in a previous established website, it also shall keep the General Directorate of Revenues (DGI, for its acronym in Spanish) informed.
• Until August 30^th, 2010, the delinquent charges corresponding to the first four-month period of the year 2010, applied to the Real Estate Tax caused by the land value of those properties incorporated to the Horizontal Property Regime shall be cancelled. The sums paid in excess shall be recognized as tax credit applicable to maturity of payments in the future of this tax.
• It is established that all registration of ownership title of vessels, of naval mortgage or cancellation thereof or registration of any other encumbrance shall be made before the Panama National Maritime Authority, instead of the Public Registry of Panama. This provision shall be effective at the six (6) months of the entry into force of Law 33 July 1^st, 2010), that is to say January 1^st, 2011.

(Prepared by Mr. Carlos Coto, Legal Investigation Unit)