The Supreme Court of Justice of the Republic of Panama (CSJ), confirmed the fine of one million dollars to "Chevron Products Antilles" operating in an Oil Free Zone.
The Directorate General of Revenue (DGI) has been increasing, for the past 7 years, the number of transfer pricing audits of multinational groups operating in the Republic of Panama, in which it has demanded compliance with the "Principle of Full Competence" in accordance with the provisions of the Tax Code.
In addition to the audits, the DGI has also been applying sanctions for the omission of formal duties, such as the sanction for omission of the Transfer Pricing Report, which consists of a fine corresponding to 1% of the total amount of transactions with related parties with a cap of USD 1 million in accordance with Art. 762-I of the Tax Code.
On this occasion, we would like to highlight the ruling of 27 August 2021 of the Third Chamber for Litigation, Administrative and Labour Matters of the Supreme Court of Justice of the Republic of Panama (CSJ), which confirms the fine of 1 million dollars to "Chevron Products Antilles" which operated in an Oil Free Zone, for failure to file the Transfer Pricing Report - Form 930, for the 2012 tax period.
This ruling ratifies the Ruling on the Merits of the Administrative Tax Court TAT-RF-057 of May 2019, which ruled on the subjection of taxpayers operating in an Oil Free Zone and entering into transactions with related parties to the Transfer Pricing Regime in Panama. This criterion ratified by the "CSJ", provides binding considerations to multinational groups on the formal and material obligations to take into account in the assessment of their intra-group transactions.
The considerations of this Court ruling on the application of the arm's length principle in Panama set a precedent beyond the Oil Free Zone, since the ruling ratifies the subjection of transfer pricing in free zones, free zones, special economic areas and special regimes, for the purposes of the determination of the Complementary Tax and the obligation of multinational groups to submit the transfer pricing report, the transfer pricing study and the master file to the DGI. The ruling reaffirms the tax impact that the prices or margins agreed between related parties may have for the purposes of calculating the Complementary Tax in the liquidation of the Income Tax, given that multinational groups must carry out all their intra-group transactions as if they were independent parties in market circumstances, in order to avoid tax risks.