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Sunday, March 24 2019 @ 02:35 AM UTC

Why Herman Bern Is So Pissed Off

Law & Lawyers

By DON WINNER for Panama-Guide.com - I just got my hands on a copy of the article that appeared in the "El Periodico" in their first week of September 2008 edition. They published a copy of his tax return for 2007 and highlighted some of the facts and figures. Herman Bern is pissed off because "El Periodico" might have caught him low-balling his tax return in saying that he only made $39,000 dollars in 2007. He owns the Panama Canal Holiday Inn, The Intercontinental Miramar Hotel, the Crowne Plaza Panama, the Intercontinental Playa Bonita, the Gamboa Rainforest Resort, and the Ocean Business Center. With that having been said, everyone who believes that Herman Bern only made $39,000 last year, raise your hand. Well, you might be surprised to learn that you could very well be wrong. (more)

Is It Illegal to Publish Tax Returns? I don't know, let me check. OK, here's the scoop from the legal point of view. I spoke to several lawyers and got their opinions and viewpoints of this whole thing. Here are some of the issues that came up in those discussions.

Truth Is The Ultimate Defense: The guys at El Periodico will have to prove the documents they published are, in fact, the actual income tax returns as filed by Herman Bern for tax year 2007. Now that there is a civil case involving these documents, it should be a relatively simple procedure for the judge or the lawyers from the newspaper to request and obtain an officially certified copy of Herman Bern's tax return for 2007 from the Ministry of Economy and Finances (MEF). And if in fact it turns out that the tax return they published is accurate, and the information contained therein is identical to what is reflected in the government records, then the newspaper will be way ahead. The point here is that it would be really damaging and injurious if the newspaper simply made something like this up, and that the copies of the tax return they published is not, in fact, what is represented on the official return. According to the manager of "El Periodico" they went to the MEF and validated the information before they published.

Common Sense Says He's Making More: The basic thrust of the report appearing in the "El Periodico" is that it's simply too hard for the average person to believe that Herman Bern only made $39,000 dollars in 2007, and on that income he only paid taxes of about $2,500 dollars. I mean, if you ask the average Panamanian on the street to name three really rich Panamanians, Herman Bern is almost guaranteed to be on their list. Now, with the publication of this article, it's almost certain that the MEF will (or, better said should) conduct an audit of the Herman Bern estate to find out how much he actually did earn, and to make him pay the income taxes that he was supposed to have paid by law. That is, of course, assuming that Herman Bern actually did make more than $39,000 last year. I don't know that, and I can't prove it, but the MEF can.

An Assumption of Guilt and Fraud: The article that appeared in "El Periodico" talked about tax evasion and fraud - and was written from the point of view that obviously Herman Bern must be doing something wrong and breaking the law. The more people I spoke to regarding this kind of thing, the more I'm inclined to believe that "El Periodico" very well might have jumped (or leaped) to some incorrect conclusions.

That's $39,000 In Pocket Change: The really, really rich have everything established in corporations. The house, car, cell phone, utilities, food, fuel, and all other living expenses are paid for by the corporation as part of doing business. If you really want to know how much money Herman Bern paid to the Panamanian government in taxes in 2007, check to see how much money his corporations paid in taxes. Corporate income is taxed at a 30% rate, so with all of Bern's business dealings, that's how the government gets their share of the action. Practically everything Herman Bern does will be picked up by his various corporations as an expense, and the $39,000 dollar figure is basically going to represent little more than pocket change - the money he has to take in actual cash to be able to buy an ice cream Sunday or whatever. Money he was forced to take in cash as payments in order to have cash money in his pocket to pay for only those things his really smart lawyers and accountants could not bury in his corporations.

Some Might Be Offshore: One lawyer told me "the richest guys pay the least amount of taxes." It's possible (rather, likely) that Herman Bern has his income and earnings established in such a way that he receives the income to accounts in other places rather than Panama. I mean, with all that money you can hire and pay for some really good lawyers and accountants, so it's quite possible he has gone to great effort and expense to move or hide his assets offshore (from Panama) for exactly this reason - to avoid having to pay Panamanian income taxes. It makes sense that the first thing Herman Bern did when he learned about the article appearing in "El Periodico" was to consult with his lawyers and accountants. He would have to know that taking this action against the newspaper would make headlines all over the place, and you don't get that rich by being stupid, so he knew what he was getting into. Maybe he is smart and nimble enough to have created a structure which only requires him legally to pay taxes on $39,000 in income last year (and the rest is in Lichtenstein or something.)

Maybe He Did Only Make $39,000: What about this - what if Herman Bern is broke? What if his real estate empire is nothing more than a sham, a house of cards, a wisp of smoke? Maybe "El Periodico" actually broke a bigger story - that the man most Panamanians perceive to be incredibly rich is actually broke (for whatever reason.) For that to be the case, Herman Bern would have to prove that, in fact, he's basically broke. OK, hold your breath and wait for that one. I really don't think this is going to be the end result. Nah...

Article 722 of the Fiscal Code: The lawyers for Herman Bern are claiming that article 722 of the tax code prohibits the publication "in any form" of a person's tax returns. And, based on that argument, the judge in the case ordered the property of the "El Periodico" to be sequestered, deciding that the newspaper had, in fact, published the tax return. Well, they did. The next question is how did they get it. If it can be proven that a worker for the tax office gave or sold the return to the newspaper then that person would be fired and held responsible. So, Article 722 is actually directed toward government employees, and designed to create a degree of privacy for citizens who file tax returns. But, that protection is a two-way street. If there is fraud or a misrepresentation of his income on Bern's part, then the "spirit and intent" of Article 722 goes away. Like, if you're breaking the law then you can not hide behind another section of the law to do it. In this sense, "El Periodico" seems to be on solid ground.

Now It's All In Play: Thanks to the lawsuit filed by Bern, lawyers for the newspaper will be able to ask for and obtain detailed financial reports and information for any and all businesses in which Herman Bern is involved. For example, they can ask a simple question: We know Herman Bern is an owner or shareholder in the Gamboa Rainforest Resort - How much money did the resort make in 2007, how much of that was paid to Herman Bern, and how?" You see, all of that type of information is now perfectly relevant to the civil case filed by Herman Bern against the newspaper. They can ask the same kinds of questions for practically every business in which Bern is a partner, shareholder, investor, or owner.

Making Some Assumptions: Basically, what was he thinking? I can see how Bern was pissed off by the publication of his tax return, but I have to admit that I missed it completely on the first go-around. I mean, the "El Periodico" only prints about 20,000 copies of every edition, and personally I completely missed this story when it was first published. And, I would bet that most other people missed it as well. If Bern had done nothing the whole issue probably would have died a natural death. But now that Herman Bern has thrown gas on the fire by suing the newspaper, I'm absolutely certain that everyone in town is talking about his case, the article, the $39,000 dollars Herman claims to have earned in 2007, and the $2,500 dollars he paid in taxes. If I was giving him advice, I would have told him to just sit tight, do nothing, and wait for a call from the MEF (if it ever comes.) Going after the newspaper was probably a kind of "feel good" knee-jerk reaction that will probably have some negative repercussions later. Well then again, maybe Herman Bern did consult with his highly paid lawyers and accountants, and it's quite possible that he's doing absolutely nothing wrong, and that his 2007 income tax return is right on the money. Stranger things have happened.

Anyone Can Sequester Anything: This case is yet another example of the problems with Panama's civil law. Anyone with money can basically post a bond, file a civil complaint, and ask a judge to sequester assets and bank accounts. The judge grants the request based on the fact that Bern will eventually lose or forfeit the bond if he eventually loses his civil case. But in the meantime, this whole sequestering thing is a way for the rich to reek havoc using lawyers and legal terror tactics. It's supposed to be a way to ensure that the assets and funds are still there should Bern eventually win his lawsuit, but there are all kinds of complications and problems. For example, you can (in theory) sequester cattle as a valuable asset. If you do sequester cattle, what happens if half of them are pregnant, for example. When the legal case is settled there might be some damages awarded from the bond presented to get the assets sequestered in the first place, so it's at risk.

Not Even Politicians Have To Declare Publicly: The Panamanian Electoral code requires politicians to declare the sources of their campaign donations, but only to the Electoral Tribunal. They do not, for example, have to make their annual tax returns public like they do in the United States, for example. If the Panamanian government thinks Herman Bern is cheating on his taxes, then it's up to them to go after him, audit his finances, and investigate. As a private individual he is under no obligation to make his tax returns public. Now, the "El Periodico" newspaper through they had a really hot item in their hands and they ran with it, and the story was written in such a way as to make Herman Bern look as bad as possible. The article says "The insignificant sum paid by the magnate (Bern) in taxes is a slap in the face to the thousands of Panamanians who - without being millionaires - contribute and pay more in taxes for the growth of the social good of the country." In other words, Bern is not paying his fair share. I would again suggest a review of the money paid by his corporations in taxes which is guaranteed to be a whole lot of money.

Well, That Was Weird: I started off writing this article pissed off because Herman Bern would use his economic power to try to shut down a newspaper. In researching and investigating this article I spoke to several lawyers and personal finance and investment experts who think Bern very well might be doing nothing at all wrong. And what's more, it's possible "El Periodico" missed the mark when they totally ignored the corporate income and tax angle. So, there's that. Let's see how this whole thing works out over time. I suspect this story will be in the press for awhile.

Copyright 2008 by Don Winner for Panama-Guide.com. Go ahead and use whatever you like as long as you credit the source. Salud.

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