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The effect of intra-group transactions on income tax returns

Updated: Mar 15, 2023

Multinational Groups should report and review their intra-group transactions prior to the filing of the income tax return in order to reduce tax risks.

In this time of income tax declarations in Panama, it is important that Multinational Groups take into consideration the way in which they report their intra-group transactions and the effects of these on the operating results that they declare to the tax administration.

The transfer pricing regulations are found in Chapter IX of Title I of Book Four of the Tax Code of the Republic of Panama and are regulated by Executive Decree 390 of 24 October 2016. This regime regulates cross-border transactions between related parties and local transactions between related parties, provided that at least one of the parties is located in the Free Zones, Free Trade Zones, Special Economic Areas and Special Regimes in Panama.

Taxpayers with transactions subject to this regime must submit the data related to such transactions in the income tax return for the period in which they were carried out. These data include, among others, the amounts of income, costs and expenses and the status of assets and liabilities.

In addition, the transfer pricing rules establish as a main obligation for taxpayers that their intra-group income, costs and deductions reported for income tax purposes must be in accordance with the "arm's length principle", i.e. the prices or amounts of transactions agreed between related parties must reflect market prices or margins. Otherwise, a good practice would be for taxpayers to adjust their tax returns on a voluntary basis to reduce the risk of an adjustment by the tax administration.


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