Panama - Dividend

Article 10. Dividends

1.   Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.

2.   However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the beneficial owner of the dividend is a resident of the other Contracting State, the tax so charged shall not exceed 15 per cent of the gross amount of the dividends:

3.   Notwithstanding the provisions of paragraph 2, the Contracting State of which the company paying the dividends is a resident shall not levy a tax on dividends paid by that company, if the beneficial owner of the dividends is:

a)   a company, the capital of which is wholly or partly divided into shares and which is a resident of the other Contracting State and holds directly at least 15 per cent of the capital of the company paying the dividends, provided that:

(i)   the shares of the company receiving the dividends are regularly traded on a recognised stock exchange; or

(ii)  at least 50 per cent of the shares of the company receiving the dividends is owned directly or indirectly by one or more individuals who are residents of either Contracting State or by one or more companies the shares of which are regularly traded on a recognised stock exchange, but only if the last-mentioned companies:

(aa)  are residents of either Contracting State; or

(bb)  would be entitled to benefits which are similar to or more favourable than the benefits provided by this paragraph pursuant to a comprehensive arrangement for the avoidance of double taxation between their state of residence and the Contracting State from which the benefits of this paragraph are claimed or pursuant to a multilateral agreement to which their state of residence and the Contracting State from which the benefits of this paragraph are claimed, are a party; or

(iii) the company receiving the dividends is engaged in the active conduct of a trade or business in the Contracting State of which it is a resident (other than the activities of making or managing investments for the resident’s own account, unless these activities are banking or insurance carried on by a bank or an insurance company).

b)  a Contracting State, or a political subdivision or local authority thereof;

c)   a company, the capital of which is wholly or partly divided into shares, and which is a resident of the other Contracting State and holds directly at least 15 per cent of the capital of the company paying the dividends, provided that this company is a headquarters company for a multinational corporate group which provides a substantial portion of the overall supervision and administration of the group and which has, and exercises, independent discretionary authority to carry out these functions. A person shall be considered a headquarters company for this purpose only if:

(i)   the corporate group consists of corporations resident in, and engaged in an active business in, at least five countries or five groupings of countries and the business activities carried on in each of the five countries (or five groupings of countries) generate at least 10 per cent of the gross income of the group; and

(ii)  no more than 50 per cent of its gross income is derived from the Contracting State other than the Contracting State of which the headquarters company is a resident; or

d)  a pension fund that is recognised and controlled according to the statutory provisions of a Contracting State.

4.   Where a company fails to qualify for benefits under paragraph 3, it may however qualify if the competent authority of the Contracting State which has to grant the benefits determines that the establishment, acquisition or maintenance of the company does not have as its main purpose or one of its main purposes to secure the benefits of paragraph 3.

Such determination shall be based on all facts and circumstances including:

a)   the nature and volume of the activities of the company in its country of residence in relation to the nature and volume of the dividends;

b)  both the historical and the current ownership of the company; and

c)   the business reasons for the company residing in its country of residence.

The competent authority of the Contracting State which has to grant the benefits shall consult with the competent authority of the other Contracting State before denying the benefits under this paragraph.

5.   For the purposes of paragraph 3, the term “recognised stock exchange” means:

a)   any of the stock exchanges in the member states of the European Union (EU);

b)  the NASDAQ System and any stock exchange in the United States of America which is registered with the U.S. Securities and Exchange Commission as a national securities exchange under the U.S. Securities Exchange Act of 1934, the Mexican Stock Exchange (Bolsa Mexicana de Valores) and the Toronto Stock Exchange;

c)   the Panama Stock Exchange; and

d)  any other stock exchange agreed upon by the competent authorities of the Contracting States, provided that the purchase or sale of shares on the stock exchange is not implicitly or explicitly restricted to a limited group of investors.

6.   The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of paragraphs 2, 3 and 4.

7.   The provisions of paragraphs 2, 3 and 4 shall not affect the taxation of the company in respect of the profits out of which the dividends are paid.

8.   The term “dividends” as used in this Article means income from shares,“jouissance” shares or“jouissance” rights, mining shares, founders’ shares or other rights, not being debt-claims, participating in profits, as well as income from other corporate rights which is subjected to the same taxation treatment as income from shares by the laws of the State of which the company making the distribution is a resident.

9.   The provisions of paragraphs 1, 2, 3, 4 and 11 shall not apply if the beneficial owner of the dividends, being a resident of a Contracting State, carries on business in the other Contracting State of which the company paying the dividends is a resident, through a permanent establishment situated therein, and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment. In such case the provisions of Article 7 shall apply.

10.   Where a company which is a resident of a Contracting State derives profits or income from the other Contracting State, that other State may not impose any tax on the dividends paid by the company, except insofar as such dividends are paid to a resident of that other State or insofar as the holding in respect of which the dividends are paid is effectively connected with a permanent establishment situated in that other State, nor subject the company’s undistributed profits to a tax on the company’s undistributed profits, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in such other State.

11.  Notwithstanding the provisions of paragraphs 1, 2 and 10, dividends and distributions in regard of profit sharing certificates paid by a company which under the laws of a Contracting State is a resident of that State, to an individual who is a resident of the other Contracting State and who upon ceasing to be a resident of the first-mentioned State is taxed on the capital appreciation of shares, profits sharing certificates, call options and usufruct on shares and profit sharing certificates in and debt claims on a company for the period of resident of that individual for the period of residency of the first-mentioned State, may also be taxed in that State in accordance with the laws of that State, but only for a period of ten years after emigration of the individual.

Protocol:

XI. Ad Article 10

a)   The reduced rates provided for in paragraphs 2 and 3 shall not apply to dividends distributed on bearer shares.

b)  In the case of bearer shares that were converted into nominative shares, the reduced rates contemplated in paragraphs 2 and 3, shall be applicable with respect to dividend distributions paid by a company resident of a Contracting State to a resident of the other Contracting State provided that the shares so converted have been held as nominative shares for a period of at least 12 months prior to the dividend distribution.

XII. Ad Article 10, paragraph 8 and Article 11, paragraph 4

Notwithstanding paragraph 8 of Article 10 and paragraph 4 of Article 11, it is understood that income from debt-claims shall be regarded as dividends as meant in paragraph 8 of Article 10 provided that the laws of the Contracting State in which this income arises subjects such income to the same taxation treatment as income from shares according to a combination of at least two of the following criteria:

a)   the maturity of the debt-claim;

b)  the dependence of the size of the remuneration or the indebtedness of the remuneration on the profits or on the distributions of profits of the debtor or of a company related to the debtor; or

c)   the subordination of the debt-claim.

XIII. Ad Articles 10, 11 and 12

Where tax has been levied at source in excess of the amount of tax chargeable under the provisions of Articles 10, 11 or 12, applications for the refund of the excess amount of tax have to be lodged with the competent authority of the State having levied the tax, within a period of three years after the expiration of the calendar year in which the tax has been levied.

XV. Ad Articles 10 and 13

It is understood that income received in connection with the (total or partial) liquidation of a company or a purchase of own shares or a purchase or redemption of own profit sharing certificates by a company, such income is treated as income from shares and not as capital gains.