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Transfer Pricing: Taxpayer Obligations in Panama

Galíndez, Medrano & Asociados. Precios de Trasferencia en Panamá

Transfer pricing legislation in Panama is provided for in Chapter IX of Title I of Book Four of the Panamanian Tax Code. This legislation establishes that multinational groups or economic groups must determine their income, costs and deductions with their related parties in accordance with the prices or amounts agreed by independent parties under market conditions in the determination of the taxable income tax base, i.e., in accordance with the "Arm's Length Principle" or "The Principle of Free Competition".

This means that taxpayers subject to the transfer pricing regime must take into account the results of their intra-group transactions in their Income Tax Returns in accordance with Articles 762-D and 762-L of the Tax Code. Consequently, when intra-group transactions do not correspond to the prices agreed by independent parties in comparable circumstances, taxpayers are obliged to increase their income tax base.

However, these adjustments must be made in the corresponding tax period and must be reflected in the Income Tax Returns. Otherwise, the Transfer Pricing Department of the Directorate General of Revenue could audit the related party transactions and propose adjustments to the taxable base of such tax, in addition to the corresponding surcharges and interest.

It is important to note that Panamanian law provides for the Tax Administration's power to make adjustments to the income tax base in those cases in which transactions between related parties result in lower taxation in the country or in an income tax deferral in accordance with Article 762-B of the Tax Code. In other words, this is intended to avoid the transfer of the Panamanian tax base to another tax jurisdiction or to a preferential tax regime.

In addition to the main tax obligation of taxpayers subject to the transfer pricing regime described in the preceding paragraphs. The Tax Code establishes a number of documentary duties and obligations to be fulfilled by taxpayers, namely:

To report the data relating to transactions with related parties in the corresponding boxes of the income tax returns in accordance with the provisions of Article 762-I of the Tax Code. The omission of this data could lead to a request for rectification of the sworn income tax return by the Directorate General of Revenue, thereby restarting the period of limitation of the tax liability, i.e. the period within which the Tax Administration would have time to audit.

See complete note in "El Capital Financiero"


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