Transfer Pricing in Panama

Concept and Regulation in Panama

Transfer Pricing obligations in Panama have been established since 2011, when a Transfer Pricing study was required whenever transactions are carried out with related parties domiciled in countries with which Panama had signed a Double Taxation Avoidance Agreement.

Nevertheless, since the enactment of Law No. 52 of 2012, the application scope was extended to taxpayers that carry out transactions with related parties abroad, even if they are not domiciled in a country with which Panama has signed the aforementioned Agreement.

Thus, the Panamanian Transfer Pricing regime has as its regulatory framework Chapter IX of the Panamanian Tax Code, which was amended by the aforementioned law and Executive Decree N°390 of 2016, as well as N°46 of 2019.

The latter is of great importance as it establishes the regulatory framework of the Country-by-Country Report, with which Panama continues to align itself with what is indicated by the Organization for Economic Cooperation and Development (OECD) in its BEPS (Base and Erosion and Profit Shifting) Plan.


Principle of Free Competition

Also referred to “Arm’s Length” principle. This is the fundamental pillar of Transfer Pricing.

Panama’s regulations define the arm’s length principle as operations that taxpayers carry out with related parties must be valued according to the arm’s length principle, meaning that ordinary and extraordinary income and the costs and deductions necessary to perform those operations must be determined considering the price or amount that would have been agreed upon by independent parties under similar circumstances in conditions of free competition. 

In 2018, it was added that entities holding a “multinational company headquarters license” must report in the Income Tax Return (ISR) following the arm’s length principle.

This principle is protected under Article 762-A of the Fiscal Code

Transfer Pricing Application Scope in Panama

According to Article 7 of Law No. 52-2012 of the Tax Code, the transactions subject to the Transfer Pricing Regime are those that the taxpayer carries out with its related parties located in another jurisdiction.

This is provided that such operations are considered as income, cost or deduction for income tax.


According to Article 762-C, of the Panamanian Tax Code, two or more persons are considered related parties when:

  • One of the persons participates, either directly or indirectly, in the management, control or capital of the other.
  • A person or group of persons participating, as indicated in the preceding paragraph, in such persons.
Likewise, the main office or other permanent establishments of a permanent establishment, as well as the persons indicated above and their permanent establishments, shall also be considered as related parties to a permanent establishment.

Transfer Pricing Methods in Panama

There are 5 methods in the Panamanian Transfer Pricing legislation, in order to be able to analyze the agreed value in transactions among related parties.

According to Article 762-F of the Tax Code, these are as follows:

  • Uncontrolled comparable price method.
  • Cost plus method.
  • Resale price method.
  • Utility partitioning method.
  • Net transaction margin method.
It should be noted that the aforementioned standard states that the last two methods should be used to the extent that there is a greater complexity in the transactions or lack of information, such that the first three methods could not be priorly applied.

Transfer Pricing Affidavit and Documentation in Panama

The Panamanian legislation on Transfer Pricing provides for those taxpayers obliged to file a Transfer Pricing Report and a technical study with information from the taxpayer and, if applicable, from the business group to which the taxpayer belongs.

Likewise, as of 2019 in Executive Decree No. 46, the presentation of the Country-by-Country Report or CbC Report has been regulated.

Transfer Pricing Report

According to article 8 of Law No. 52-2012, taxpayers that carry out transactions with related parties must file a transfer pricing report on an annual basis.

This must be filed within six months following the closing date of the fiscal period, by means of Form No. 930.

In 2018, Form No. 930 was modified following the publication of Resolution No. 201-1937. Noteworthy features include:

  1. An annex must be completed for intangible transactions such as royalties, intellectual property, trademarks, among others.
  2. The taxpayer must disclose if they are under a special tax regime or economic zone.
  3. If a profit margin-based method has been used, it is necessary to disclose the names of the companies selected as comparables, the fiscal periods of the comparable companies used, as well as the country of residence.

Extensions of time or amendments to the Transfer Pricing Report 930 cannot be requested. In case of errors in the Informative Declaration 930, its cancellation must be requested through an explanatory note and will be subject to the discretion of the DGI.

Transfer Pricing Study

According to Article 9 of Law No. 52-2012, as well as Article 11 of Executive Decree N°390 of 2016, persons required to file the aforementioned affidavit or report must have a Transfer Pricing study, in order to be able to verify the valuation analysis of related party transactions.

This report, which could be called a “Local File“, as it is focused on taxpayer-specific documentation and follows the guidelines outlined in BEPS Action 13, should only be filed at the request of the Directorate General of Taxes (DGI).

The term for this will be 45 days, counted from the notification of the requirement.

Likewise, in the case of those taxpayers that are part of a business group and carry out economic activity among themselves, information must be submitted regarding the group, such as a general description of the organizational, legal and operational structure of the group, among others.

This is also in accordance with the guidelines of the aforementioned action for the “Master File“.

Country by Country Report

Executive Decree No. 46 of 2019 establishes the regulatory framework for the Country-by-Country Report

In accordance with Article 2 of the aforementioned Decree, the following shall be required to file this report:

  • The Ultimate Parent Company of a multinational group whose consolidated income in a fiscal period exceeds 750,000,000 euros or its equivalent in balboas, provided that it is fiscally resident in Panama.
The information to be reported includes income, pre-tax profit or loss, income tax paid and accrued, declared capital, intangible assets, identification of each member entity, among others, regarding the jurisdictions in which the multinational group operates.

According to article 5 of Executive Decree No. 46-2019, the aforementioned report must be filed within 12 months following the closing date of the corresponding fiscal period and will be delivered in “XML Schema” format, according to DGI regulations.


According to Article 8 of Law No. 52-2012, the failure to file the Transfer Pricing Affidavit referred to in said article entails a penalty of 1% of the total gross amount of the transactions with related parties, with a maximum limit of B/. 1,000,000.

Regarding the lack of Transfer Pricing Study, the regulation does not quote a specific fine or sanction for this infraction. Nevertheless, it may be sanctioned according to the provisions of Article 756 of the mentioned Code, regarding the failure to deliver documentation related to the application of the tax or to elaborate it out of the term.

This is sanctioned with a fine ranging from B/.1,000.00 to B/.5,000.00, the first time, and with fines ranging from B/.5,000.00 to B/.10,000.00 in case of recurrence.

Likewise, the closure of the establishment may be ordered for 2 days the first time and up to 10 days in case of recurrence. If non-compliance persists, 15 days of closure will be imposed for the establishment in question.


OECD Guidelines

According to the third paragraph of Article 7 of Law No. 52-2012, the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations approved by the OECD Council are considered as interpretative criteria.

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