Tax planning risks in the wake of the Pandora Papers

5 November, 2021
Tax planning risks in the wake of the Pandora Papers

Through her website in the newspaper “La República,” Priscilla Sánchez Conejo commented on the new risks of tax planning after the uncovering of the tax scandal called “Pandora Papers.”

1. Historical background

According to Sánchez, tax havens and the planning that generate to avoid taxes are being harmed by the uncovering of high-caliber scandals. First, there were the so-called “Panama Papers” in 2016, then the Paradise Papers appeared in 2017, and now Pandora Papers in 2021.

In this regard, what is the current difference concerning the new powers of the Tax Administrations? The answer lies in the DAC (Directiva Administrativa Comunitaria – Community Administrative Directive) Number 6, which came into force in the countries of the European Union in 2021.

2. New Guidelines

As previously mentioned, the response of the Tax Administration is the application of CAD 6, which is understood as the guideline that establishes the obligation for “tax intermediaries” to inform the Tax Administrations about “cross-border tax planning mechanisms” of their clients. In other words, any professional involved in a tax restructuring or planning that identifies features of “aggressive tax planning” must inform the competent Tax Administration.

Unfortunately, in Costa Rica, there are still no such obligations for tax advisors. However, after the publication of the Pandora Papers, the Tax Administration has issued a communiqué, similar to the one issued in 2016 after the publication of the “Panama Papers,” to initiate the request of information requirements to those taxpayers who are in these publications.

3. Defective procedure

As expressed by Sánchez Conejo, the procedure in the administrative venue gives the Tax Administration the guarantee of transferring the burden of proof of compliance with tax obligations to the taxpayer. However, the opposite happens when a process of commission of a tax crime (fraud against the Public Treasury) is taken to the judicial venue, where the taxpayer enjoys the protection of the principle of innocence and the right not to incriminate himself, depending on the Tax Administration to prove the commission of the taxpayer’s crime through the inappropriate use of legal figures, which must be demonstrated by the Tax Administration.

Therefore, many tax proceedings remain in the administrative venue, simply because it is easier for the Tax Administration to force the taxpayer to prove within the broad discretion of such Administration whether or not the tax obligations have been complied with.

Source: La República 05/11/21