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Tax Effects: Dissolution of Companies

We had to deal recently with the responsibility arising out of unpaid taxes when a company is dissolved having retained earnings subject dividend taxes.

Article 528-A of the Commercial Code, added by Act 85 of 2012, deals with the dissolution of companies and explains causes and effects of their permanence in time to the end of the liquidation of its assets, after collecting their debt and pay its liabilities.

According to the designated provision, the dissolved company is not extinguished subject to the disposition of assets and debts are canceled to creditors, including the State, and finally the surplus is allocated among the partners or shareholders, after complying with the tax rules without forgetting the dividend tax borne by shareholders, even though the withholding was not done.

Moreover, the same that Article provides that the dissolution does not end until the minutes of a meeting of shareholders evidencing the payment of their loans, payment of its liabilities and distribution of the surplus to its shareholders are registered at the Public Registry.

In short, as stated in the preceding two paragraphs, this implies that the company "dissolved by the vote of the shareholders according to its instrument of incorporation or the laws that regulate" maintain or preserve its legal status by the time it takes the liquidation of the assets according to their nature, payment of liabilities according to their origin for proper termination and distribution of surplus between shareholders.

The tax implications, especially with regard to tax dividends from retained earnings, has its origin in the usual rejection of taxes by taxpayers and traditional satisfaction of certain legal advisors, accountants and / or tax experts, who for purposes of billing, transgress tax laws.

To pretend that with the dissolution, the accumulated profits will disappear through transfer of assets, avoiding applicable taxes implies that someone has benefited from the trick at the expense of the State Treasury. It should be noted that the taxpayer incurs in a tax crime under Article 752 of the Tax Code, an offense which specifically states that the person engages in tax evasion when "simulates a legal act or losses involving partial or total failure to pay taxes ".

Furthermore, the same article states that is punishable by fine of not less than 5 times or more than 10 times the amount defrauded, or imprisonment from one month to one year; and if the taxpayer received the support of a sponsor aider or abettor, the penalty shall be divided equally.

It should be noted that all companies whose income is derived from foreign sources are not included in this rule since all income arising from foreign sources is tax free due to the territorial tax system applicable in Panama.

Dr. Juan F. Pardini

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