By Conor Golden
News Editor of A.M. Costa Rica
The finance ministry is investigating 120 individuals and business entities for possible instances of tax fraud and other violations as a result of an examination of the documents collectively known as the Panama papers.
Out of the 120 under investigation, 79 are business entities and 41 are individual persons, according to the Dirección General de Tributación.
Officials of the Ministerio de Hacienda, including the First Vice President Helio Fallas, broke the news to the press during a Tuesday afternoon conference. Of the 120 under investigation, 69 have been identified while 51 identities still need to be discovered, according to Fernando Rodríguez who is the representative of the special committee investigating the case.
Although it is not illegal to establish an offshore corporation by Costa Rican law, the ministry pointed out that the 69 identified entities had established more than 410 companies in Panamá. The insistence from the Administración Tributaria is that “behind the creation of these societies, there is a clear intention to evade tax responsibilities,” Rodríguez said.
Panamá has a well-known association of being a tax haven for many corporations and entities seeking tax avoidance as much as tax sheltering.
Tax avoidance is separate from activities like tax fraud or tax evasion, however.
Tax avoidance is legal and merely means someone or a group’s attempts to keep the tax bite on their business as minimal as possible using strategies or means within the law.
Expats may seek methods of tax avoidance at times by moving their tax residence to a tax haven such as Panamá or by moving to a country with lower taxes than their own.
There are many other ways to lower the tax bite such as donations to charities which can be deducted on one’s tax return in the United States. In some cases, being a perpetual traveler is also another way although citizens of the United States cannot hope, at this time, to use that method.
One of the means by which a person or entity can achieve tax avoidance is by establishing a company or a subsidiary of the business in an offshore jurisdiction such as an offshore company or trust.
In this instance, the Costa Rican government is examining the offshore companies in question for possible fraudulent or evasive activities.
It should be noted, however, that of those 69 entities already identified by Tributación, 35 have filed income tax returns at least once between 2014 and 2015. 20 failed to file during both years.
Rodríguez presented two examples by which the finance ministry believes these 120 entities have attempted to circumvent the tax code.
To omit the payment of a dividend tax, a person or group may create an offshore company that is real only in name, but officially has the purpose of acquiring a service, the ministry said. The payment coming by the end of that process is received then by shareholders of the very same company that purchased the fake service.
The leak exposed thousands of sensitive material and implicated global leaders.
The other maneuver Hacienda discussed in its presentation was the process of transferring money from Costa Rica to a Panamanian offshore company. From there, the offshore moves those resources to what is called a fundación de interés privado in Panamá. This allows the foundation to transfer received income to shareholders of the company that sent it through the Panamanian offshore.
At this time, this is all conjecture at the Ministerio de Hacienda. Fallas himself noted the slow nature of the investigations. No expats or foreigners were directly implicated.
The nearly 2,660 gigabytes worth of detailed financial information and attorney-client privilege known as the Panama papers were first sent to German reporters back in 2015 exploded on to the world stage in April 2016.
The documents implicated the involvement of many world leaders and, in some cases their relatives or business associates, in relation to offshore entities used as shell corporations to funnel money for personal profit.
These papers originally belonged to a Panamanian-based law firm known as Mossack Fonseca. The International Consortium of Investigative Journalists has the full document published on its website. This was the medium used by the Costa Rican government to begin its investigation related to the case.