A former business partner of President Trump’s real estate company is suing the company in U.S. court, alleging a failure to pay Panamanian taxes and social security contributions related to a luxury hotel. Read the amended complaint here. Portions of the complaint are posted below.
Trump International Hotel & Tower Panama
The dispute arises out of Trump’s failure to meet its obligations arising out of the Agreement, involving the former Trump International Hotel & Tower Panama, including causing intentional damage to the Hotel Amenities Units and failing to pay income taxes to the Panamanian government.
The suit also claims Trump fraudulently induced Ithaca into the Bulk Sale Agreement; and its wrongful attempt to bully, intimidate and harass third-parties by attempting to join them to an arbitration pending before the International Chamber of Commerce.
The Hotel is part of a 70-story, luxury mixed-use, multi-component tower located on the waterfront overlooking Panama Bay in the Punta Pacifica area of Panama City, Panama, which includes a hotel, residences, event space, restaurants, and casino. The building, the tallest in Panama, opened in 2011.
Trump managed the Hotel until March 2018 pursuant to a hotel management agreement.
In 2017 Ithaca Capital Investments acquired 202 of the 369 hotel units in the Trump Panama Hotel, and 13 of the hotel amenities units as part of a Bulk Sale Agreement.
In meetings with Ithaca and Trump, Ithican states that Trump repeatedly represented to Ithaca that it was a professional luxury hotel operator and that through its efforts the Hotel was out-performing the market in Panama.
Ithaca later learned that these statements were false and misleading. The Hotel was losing market share by the day and being out-performed in the Panama market not only by its luxury competitors, but also by select service hotels. Ithaca also later learned that Trump’s statements were incomplete, intentionally misleading and failed to disclose that Trump had been deflating expenses, including failing to disclose that Trump did not report or fully pay social security withholdings for the Hotel’s employees, and hiding the amount of the purported management fees it was taking from the Hotel’s operations.
Trump let the Hotel sit virtually empty, resulting in abysmal occupancy rates and all the while guest complaints went unanswered, the Hotel went uncleaned for years, and the Hotel Amenities Units remained substantially underutilized.
Instead, Ithaca alleges, Trump enjoyed nothing but upside while the Hotel’s owners continued to lose market share at an alarming rate and watched their expenses grow to be significantly higher than that of the Hotel’s regional luxury competitors.
Evasion of Panamanian Tax
Ithaca went to court to have Trump name removed from the hotel in March 2018.
After Trump vacated the Hotel in March 2018 and turned management of the Hotel and Hotel Amenities Units to the unit owners, Ithaca learned that Trump had failed to comply with Panamanian tax and legal requirements, including, but not limited to, failing to pay withholding taxes on Trump’s own management fees and failing to fully report employee salaries, exposing Ithaca to millions of dollars in liability.
In the Spring of 2018, the Panamanian tax authorities began auditing the Hotel and identified the failure to withhold and pay income taxes relating to Trump’s management fees.
Under Panamanian law, Trump was required to pay 12.5% of the management fees it received for the management services it provided in Panama, with that amount withheld by the Hotel prior to making the payment to Trump.
Ithaca claims that Trump used its control over the Hotel bank accounts to make payments to itself and affiliates without withholding the 12.5% tax on its management fees, thus intentionally evading taxes that would have been withheld from its management fees.
It further claims that Trump made fraudulent and false claims to the Panamanian tax authorities that it was an affiliate of Hotel TOC, a Panamanian entity, in an attempt to cover up its unlawful activities.
Had Trump been honest with Ithaca about its failure to pay taxes on the management fees it earned and its failure to properly report employee salaries to Panama’s social security agency, Ithaca says it would have never entered into the Bulk Sale Agreement.