Intragroup Transactions and Their Impact on the Income Statement

March 8, 2022

Multinationals need to focus on the reporting process of intragroup transactions in the income tax return. In Panama, the Tax Code states that Transfer Pricing adjustments will only be made when the results of the taxpayer’s intragroup transactions are not part of the range of market prices or margins.

In addition, these Transfer Pricing adjustments must be determined under the taxable base of the Income Tax, according to the Transfer Pricing methodology, and included in the income tax return for the tax period in which the transactions were carried out.

In this regard, if the result of a taxpayer’s transactions of purchasing certain products from related parties for distribution in the local market was below the market range, the Panamanian entity selected as the tested party must adjust its costs in the income statement so that its result falls within the market range.

Consequently, these situations of non-compliance, overestimation, or underestimation of income, costs, and expenses can lead to fines by the Tax Authority. Therefore, multinationals must perform reviews before filing their Income Tax Returns to minimize fiscal risks.


Source: Martes Financiero, 03/08/22