Transfer Pricing Regulations in Panama
Since the 2011 fiscal year, Panama’s General Tax Directorate (DGI) has required the annual filing of a report on transactions with related parties (Form 930). This requirement is based on Article 1 of Law 33 of 2010, as amended by Law 52-2012 (Regulations for Compliance with Treaties or Agreements to Avoid International Double Taxation). It is also based on Executive Decree No. 390 (which repealed Executive Decree No. 958), Law No. 52, and Law No. 57.
In 2018, Law No. 69 was enacted, which includes provisions on the application of transfer pricing regulations. This law adds Article 762-L to the Tax Code, establishing that, as of the 2019 tax year, transfer pricing rules will apply to any transaction that an individual or entity enters into with related parties that are established in the Colón Free Zone and operate: (1) in the Petroleum Free Zone pursuant to Cabinet Decree No. 36 of 2003; (2) in the Panama-Pacific Special Economic Area; (3) under the multinational headquarters regime; (5) under the City of Knowledge regime; or (6) in any other current or future free trade zone or special economic area.
Likewise, Article 762-A of said Law states that transactions carried out by taxpayers with related parties must be valued in accordance with the arm’s-length principle, that is, ordinary and extraordinary income, as well as intercompany costs and deductions, must be determined based on the price that unrelated or independent parties would have established or agreed upon under similar circumstances.
On May 27, 2019, Executive Decree No. 46 of 2019 was enacted, establishing the regulatory framework for the Country-by-Country (CbC) Report. The Decree stipulates that companies that are tax residents of Panama and are also the ultimate parent company of a multinational group with consolidated revenue exceeding seven hundred fifty million euros (€750,000,000.00) or the equivalent in U.S. dollars.
Related-Party Rules in Panama
For the purposes of the transfer pricing rules in effect in Panama, two parties are considered related when they meet one or more of the following criteria:
a) One of them has a direct or indirect interest in the management, control, or capital of the other.
b) A person or group of persons has a direct or indirect interest in the management, control, or capital of such parties.
c) Furthermore, a permanent establishment, its head office, or other permanent establishments thereof, as well as the persons referred to in the preceding points and their permanent establishments, are considered related parties.
Formal Obligations: Informative Affidavits
Informative Transfer Pricing Return (Form 930): The Informative Transfer Pricing Return (Form 930) is established in Article 762-I of the Code. This related-party annex must be filed no later than 6 (six) months after the end of the taxpayer’s fiscal year. This form is available on the DGI website.
Entities required to file Form 930 are those companies that conduct transactions with related parties who are tax residents of other jurisdictions (non-domiciled), provided that such transactions affect the calculation of income tax for the tax period in which the transaction is reported or carried out.
Transfer Pricing Technical Study – Supporting Documentation: Pursuant to Article 10 of Executive Decree 390-2016, which regulates Article 762-J of the Tax Code, the documentation requirements that the transfer pricing study must meet are established.
Deadline for Filing Annual Tax Returns
The Transfer Pricing Information Return (Form 930) must be filed no later than 6 (six) months after the end of the taxpayer’s fiscal year.
Regarding the preparation and submission of the transfer pricing study, the Tax Code of the Republic of Panama does not establish a deadline; however, for the purposes of the related-party information return, the study must be completed beforehand.
Penalties for Noncompliance
If the taxpayer fails to file the informative return, a fine of 1% of the total gross amount of transactions with related parties will be imposed, up to a maximum of USD 1,000,000.
On the other hand, Panamanian law does not provide for a specific fine for failing to submit the transfer pricing study; however, general fines for failure to file documentation will apply, ranging from USD 1,000 to USD 5,000 in the first year, and from USD 5,000 to USD 10,000 in the event of a repeat offense.
Transfer pricing-related income adjustments imposed by the DGI may result in a fine of 10% of the unpaid taxes, plus interest (0.8% monthly interest).
