Amendments for the Subjects Obliged to File TP Documentation in Panama

December 23, 2022

The General Revenue Directorate (DGI) has applied the Transfer Pricing tax control regime, resulting in discussions regarding the Arm’s Length Principle and the Transfer Pricing obligations of taxpayers performing related party transactions from Free Trade Zones, Special Economic Areas, and Special Regimes.   

On the other hand, there have been controversies due to transfer pricing adjustments and the imposition of fines, reaching up to one million dollars according to the provisions of Art. 762-I of the Panamanian Tax Code. 

1. Transfer Pricing Regime

It is important to keep informed of the latest amendments related to Transfer Pricing, even more so if you belong to Panamanian multinational groups and economic groups.   

This regime is a tax control rule that seeks to avoid the transfer of profits through transactions carried out between related parties. In this sense, taxpayers subject to the transfer pricing regime must comply with the arm’s length principle of article 762-A and the obligations outlined in articles 762-I, 762-J, and 762-K. 

2. Before the 2018 tax period

Until the 2018 tax period, only taxpayers carrying out transactions with related parties located in other jurisdictions were subject to the transfer pricing regime, provided that such transactions affected income, costs, and expenses in terms of income tax calculation.  

However, due to the incorporation of Article 762-L in the Tax Code, taxpayers under a special regime, even enjoying a zero income tax rate, are subject to compliance with the transfer pricing rules as of the 2019 tax period for all their operations carried out with foreign or local related parties. 

3. Resolution No. TAT-RF-075 of July 6, 2022

The Panama Tax Administrative Tribunal Fund (TAT) issued Resolution No. TAT-RF-075 of July 6, 2022, by which it is indicated that those taxpayers that carry out transactions with related parties and are under a legal stability regime are subject to transfer pricing obligations as of the 2019 period.  

Likewise, reiterating that as of 2019, taxpayers subject to Article 762-L of the Tax Code are obliged to report in their income tax returns all their transactions carried out with related parties and submit the corresponding Transfer Pricing Reports and other mandatory documents.  

With this ruling, the DGI will increase the transfer pricing information requirements and the imposition of fines on taxpayers who fail to comply with their obligations in free and free zones, special economic areas, and special regimes. 

Source: Martes Financiero 21/12/22