Taxpayers that carried out transactions with related parties during the period 2022 have until 30 June to file the "Transfer Pricing Report", also known as Form 930.
This report must be filed by taxpayers that carried out transactions with their related parties abroad and/or locally when at least one of the parties is registered in a zone, regime or special economic area in Panama.
There are several aspects of the report that should be considered by multinational and local groups, the main aspect being the risk of non-compliance.
The aforementioned non-compliance with the Transfer Pricing Report carries a penalty of 1% of the total amount of related party transactions, with a cap of up to USD 1 million.
Although the fine is proportional to the amount of related party transactions, distribution centres can reach a high amount, as they have high volume revenue and cost transactions due to the nature of their operations.
In addition, multinational or local groups with different entities participating in the supply chain of goods should pay special attention to this obligation, as they could be penalised in each of the entities participating in the value chain.
When assessing whether or not a taxpayer should comply with reporting, it is important to consider the knock-on effect that non-compliance may have.
In addition to the report, taxpayers subject to the transfer pricing regime must prepare the Transfer Pricing Study and the Documentation Related to the Business Group established in Articles 762-J and 762-K of the Tax Code.
In this regard, each omission or late submission of documentation to the DGI carries a penalty of between USD 1,000 to USD 5,000 on a first occasion and rises to USD 10,000 and up to a possible closure of the business establishment in case of recidivism, in addition to the cost of possible litigation before the different instances.
This means that the penalties for non-compliance and their effects can in many cases be higher than a transfer pricing audit adjustment by the Directorate General of Revenue (DGI) of the Ministry of Economy and Finance.
Another important aspect of the Transfer Pricing Report is its content and its importance for the selection of audit cases for the DGI.
The information reported in the report must be consistent with the income tax return for the same period, the Audited Financial Statements, the Transfer Pricing Study and the Documentation Related to the Business Group.
This consistency refers to the amounts, the nature of the transactions, the main activities or functions, the risks assumed, the capital structure, the assets and other resources used.
In other words, the description of the activities and transactions carried out by the taxpayer must be consistent with the financial information and, for tax purposes, with the income tax return.