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Companies and individuals engaged in legal, real estate, agricultural, commercial and advisory services and consultancies are among the first 120 to be investigated by the Costa Rican tax administration, said the treasury department today.

The names were identified in a publicly searchable database released last April during the Panama Papers scandal by the International Consortium of Investigative Journalists (ICIJ) to publicize various types of fraudulent financial activities by a significant number of companies worldwide.

The Costa Rican Treasury announced today in a press conference that 79 companies and 41 individuals in Costa Rica are currently under investigation by the country’s tax agency (known as the DGT, in Spanish) in what is being called the first stage of this process.

The treasury added that as the investigations unfold and details on partnerships emerge, there is a possibility that more individuals and companies will be added to the investigations.

These first findings of the special commission created by the treasury to investigate Panama Papers cases in Costa Rica reported that of the entities under investigation, 69 have been located and 51 remain at large. These 69 entities hold a combined total of 410 offshore companies in Panama, and the majority have lapsed in their tax filing requirements, said the treasury.

“Although these are the commission’s preliminary findings, the ICIJ’s public complaint last year together with the fiscal risk behaviors presented by these 79 companies and 41 individuals, makes the tax administration presume that hidden behind the creation of these [offshore] companies, there is a clear intention to evade tax responsibilities, in which case their cases will be transferred to the areas of oversight of the DGT or the Public Prosecutor’s Office, as appropriate, where the investigations will continue,” said Fernando Rodríguez, vice-minister of revenue.

Practices such as failing to distribute dividends, reporting expenses or losses in excess of 50 percent of net income, or costs and expenses greater than 80 percent of gross income, declaring zero tax on income or recurring losses during several fiscal periods, and showing possible unjustified equity increases are just some of the red flags in the cases being analyzed in this first stage of the process.

One type of fraud seen by Fernando Andrés Rodríguez Cubillo, member of the investigative commission, is when a company, in order to avoid paying taxes on dividends, creates an offshore company in Panama, usually a shelf corporation, in order to then appear to acquire a certain service. The payment for such “services” actually goes back to the parent company shareholders but in the guise of a consultancy rather than as a dividend payment.

Another fraud practice found consists of transfering money from Costa Rica to a Panamanian offshore company, which in turn transfers those resources to a private foundation also based in Panama. Private foundations in Panama are not required to report on the origin and final destination of the resources they receive. This allows said foundation to transfer the income received back to the shareholders of the company that initiated the payments through the Panamanian offshore company.

“Thanks to the new anti-fraud law, which allows us access to the list of shareholders of companies and the company’s ultimate beneficiaries, we will be able to analyze more broadly the links between companies in the national territory, and to disrupt complex fraud maneuvers that harm the public treasury. In addition to the legal tools we have, there is the Mutual Assistance Convention signed by Panama, which will allow the exchange of tax information with that country. Instruments such as these and those related to transfer prices, which we have included in the pending income tax bill, are fundamental to improving tax controls. Hence we are interested in discussing and approving the income tax legislative proposal in the Legislative Assembly,” said Helio Fallas, first vice president and finance minister.