TAT Confirms Transfer Pricing Adjustment in Panama 

August 28, 2023

The TAT (Administrative Tax Court of Panama – Tribunal Administrativo Tributario de Panamá) has confirmed a Transfer Pricing adjustment, reaffirming that information irregularities in Transfer Pricing declarations may generate the opening of auditing processes. In this regard, the Tax Administration will be able to adjust related party transactions when not corresponding to market prices. 

Substantive Resolution N°TAT-RF-019  

This year, through Resolution N°TAT-RF-019, the TAT ratified a Transfer Pricing adjustment to a multinational company of machinery and spare parts distribution for US$1,690,875.90, generating an Income Tax payment of US$520,789.75. 


The taxpayer carried out related party transactions abroad (purchase of inventory for distribution, sale of inventories not produced, administrative services received, technical services received, commissions in favor, purchase of fixed assets, royalties, and administrative services rendered) during 2012 and 2013.  

Upon detecting some inconsistencies between the income affidavits and the Transfer Pricing Reports, the DGI (Dirección General de Ingresos – General Revenue Directorate) initiated an audit process for the taxpayer. The company reported in the Income Affidavit several related party transactions of US$18,128.18, while, in the Transfer Pricing Report, US$28,465,574.81 has been declared.  

Therefore, the DGI adjusted the declared taxable base, given that the company excluded US$6,956,967 of its general and administrative expenses (of an extraordinary nature) for the calculation of its profitability indicator. Conversely, the DGI rejected this exclusion, given that this considered that the expenses are recurrent and ordinary to the activities carried out by the taxpayer. 

Position of the Court 

The TAT considered that the general and administrative expenses are related to the ordinary activity of the taxpayer. In addition, the Court supported its position by arguing that the taxpayer cannot subjectively adjust its financial information based solely on the variation from one year to the next.   

On the other hand, the Court pointed out that the burden of proof when excluding elements of the financial results for the calculation of the indicator lies with the taxpayer and not with the DGI.  

Therefore, multinational groups must have supporting documentation according to the Transfer Pricing regulations to support their policies and avoid adjustments.   

Source: Martes Financiero