Transfer Pricing Application in Panama

December 7, 2021

Transfer Pricing is the determining figure that distributes the taxable base internationally among related parties within the legal parameters to avoid double taxation intending to increase their productivity.

On the other hand, the importance for tax administrations lies in the potential effects on tax revenues derived from related party transactions, imposing on taxpayers the obligation to prove and have duly documented all their related party transactions based on the Arm’s Length Principle in tax matters.

Obligations and Application of Transfer Pricing in Panama

In this regard, the Transfer Pricing obligations in Panama have been established since 2011, when studies related thereto were mandatory whenever transactions were carried out with related parties domiciled in countries that signed a Convention to Avoid Double Taxation with Panama.

Conversely, since the promulgation of Law No. 52 of 2012, the application scope was extended to taxpayers who carry out transactions with related parties abroad, even if they do not reside in a country that signed the aforementioned Convention with Panama.

Transfer Pricing in Panama is based on Chapter IX of the Tax Code of Panama, later amended by Law No. 52 of 2012 and Executive Decree No. 390 of 2016, as well as No. 43 of 2019.

Article 762-A of this Law states that related party transactions of taxpayers must be valued under the Arm’s Length Principle, i.e., ordinary and extraordinary income, as well as intercompany costs and deductions, are agreed upon taking as reference the price agreed upon by unrelated or independent parties under similar circumstances.