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Transfer Pricing Report Million Dollar Fines: An Ongoing Debate in the Tax and Business Community

The obligation to file the "Transfer Pricing Report", established in Article 762-I of the Tax Code, applies to economic groups that carry out transactions with related parties abroad or in entities located in special zones in Panama. Taxpayers subject to this obligation must file the "Form 930" within six months after the closing of their fiscal period through the e-Tax 2.0 portal of the General Revenue Directorate of the Ministry of Economy and Finance (MEF).

In case of omission or late filing of the report, the Tax Code establishes a fine of 1% of the amount of intra-group transactions, with a limit of US$1 million. These fines have generated debate in the tax and business community, both for their amount and for the legal arguments of the advisors and taxpayers who failed to file the report.

Debate multas de un millón de dólares del Informe de Precios de Transferencia

The discussion is divided into two phases. The first phase, until the 2018 tax period, only required reporting by taxpayers conducting cross-border transactions. The second phase, starting in 2019, included those conducting local transactions with related parties in special zones.

The initial debate focused on the definition of obligated parties, generating conflicting opinions between the Tax Administration, the Administrative Tax Court and the tax community. The ruling of the Third Contentious, Administrative and Labor Chamber of the Supreme Court of Justice of Panama in August 2021 ratified the imposition of a fine of one million dollars to a taxpayer for failure to report for the 2012 tax period, reaffirming the Tax Administration's position on the application of fines to omitted or late taxpayers and the obligation to file the report to related parties in special zones.

In summary, the Transfer Pricing Report fines continue to be a relevant topic in the Panamanian tax and business community, raising debates on its application and scope in the compliance of taxpayers' tax obligations in transactions with related parties both locally and internationally.

In the second phase of application of the "Transfer Pricing Report", the Tax Administration has imposed omission and/or extemporaneous fines for one million dollars to taxpayers established in the assumptions of Article 762-L, regardless of the effects on the calculation of Income Tax.

Among the issues of debate arising from the application of penalties in this second phase, is the interaction between the legal stability law and the transfer pricing rules, as well as the need to differentiate between types of non-compliance within Article 762-I.

It is important to note that Article 762-I contemplates two assumptions for the imposition of penalties: the omission of the "Transfer Pricing Report" and the untimely filing of the same. It does not establish a reduction in the amount of the penalty for those taxpayers that filed the report completely but untimely. The amnesty laws have been a relief in the amount and payment agreements for this segment of taxpayers who have filed their reports after the deadline, but voluntarily and following the principle of good faith.

In addition, the General Directorate of Revenues has been carrying out cross-checks of information and comprehensive audits for Income Tax to detect taxpayers who have failed to file the transfer pricing report. Emphasis is placed on accounting information, audited financial statements and other aspects to verify the amount of intra-group transactions and require the filing of the report in case of omission.

It is essential that taxpayers are informed about the risks of not identifying and reporting their transactions with related parties in a timely manner in the income tax return and in the transfer pricing report. This will help to avoid penalties and audit processes by the tax administration, in compliance with Articles 762-D and 762-L of the Tax Code.


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