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San José, Costa Rica, Tuesday May 24, 2016, Vol. 17, No. 101
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Tax official claims avoidance violates spirit of  law
By the A.M. Costa Rica staff

A ranking official of the finance ministry said Monday that legitimate tax avoidance is a fallacy. That was the title of a press statement she released that maintained that taxpayers should not put themselves above the state.

The official, Priscila Piedra Campos, director general of Hacienda, asserted that “Legitimate avoidance does not exist. If we interpret avoidance correctly it consists in going against the will of the law without expressly breaking it but taking advantage that it is impossible that the legal rules contemplate the complexities that economic life presents.”

She was among those who attended a seminar on the Panamá Papers last week.

Avoidance generally is considered a way for an income earner to pay less taxes by arranging economic affairs in a favorable way. The U.S. Supreme Court recognized the legality of avoidance nearly 100 years ago.

The statement is important because it reflects the thinking within the Ministerio de Hacienda, which collects and spends tax money. The statement also is important for expats who probably have substantial earnings, such as passive income and pensions elsewhere, and pay no Costa Rican taxes.

Ms. Piedra said that the obligation to pay taxes does not depend on the will of the payer because taxes are an obligation that by living under the rules of the state the payer has opted for a special protection for education, the environment, health and citizen security.

Avoidance puts at risk the advances that the country desires by putting the private interest over the public one, she said.

She also branded as unfair competition the actions of someone who would pay less taxes than someone else similarly situated.

Even the journalistic organizations that released the Panamá Papers note that there are legitimate business reasons for offshore accounts and subsidiaries.

The Panamá Papers were hacked from the
pockets
A.M. Costa Rica graphic 
Tax official wants it all.

Mossack Fonseca & Co. law firm in that country. They show extensive work by the lawyers there to set up corporations and other legal entities for clients in countries that have favorable tax laws. So if an individual receives payments to an offshore account, he or she would pay less taxes.

The Costa Rican legislature has considered proposals to tax the money once it is brought into the country, but the bill has not advanced.

Ms. Piedra's comments might signal a pending
effort by the tax ministry to make more proposals covering foreign accounts to the legislature.

The revelations from Panamá were not new to Costa Rican officials. Many residents here have accounts in Panamá itself that were not set up by the law firm that was hacked. 

Some gambling operations, so called sportsbooks, receive payment in other countries even though the betting is handled in Costa Rica.

And some pay their staffers with automatic teller withdrawals from foreign bank accounts.

Such activities are well known to the Ministerio de Hacienda but any action would lead to long court battles and perhaps loss of jobs for Costa Rica.

Other businesses here operate in a gray area. Some tourist organizations accept payments in foreign accounts for accommodations and tours here and never report the money. Again, the ministry is slow to uncover these cases.

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