Transfer Pricing Regime in Panama: Present and Future

Dealing with cases that have potential transfer pricing implications in Panama requires a high level of expertise in the realm and an extended experience in cases where the common OECD practices are not applicable (Panama is not a member of the OECD).

Panama’s transfer pricing regime constitutes a hybrid insofar as OECD Transfer Pricing Guidelines are concerned. While the OECD Transfer Pricing Guidelines cannot be applied directly, they could be relied upon for interpreting rules provided they are not in conflict with the Panamanian Tax Law. Thus, a transfer pricing study undertaken by one experienced in non-OECD tax jurisdictions – such as – is recommended.

Transfer pricing regulation: no specific threshold

What renders the case of Panama rather special is the lack of a rule setting a threshold for the application of the transfer pricing law. As a result, all international related-party transactions fall within the scope of the transfer pricing legislation.

The definition of “related parties” is set out in Article 762-C:

“For the purposes of this Chapter, two or more persons shall be considered as related parties when one of them participates directly or indirectly in the administration, control or capital of the other, or when a third person or group participates directly or indirectly in the administration, control or capital of these persons. Likewise, it will be considered as related parties of a permanent establishment, the main office or its other permanent establishments, as well as the persons indicated in the previous paragraph and their permanent establishments A permanent establishment is constituted by the definition contained in article 762- M of this Chapter, or, according to the country in question, in the text of the Treaties or Agreements to Avoid International Double Taxation subscribed by the Republic of Panama”.

Once it is ascertained that a company is subject to the transfer pricing legislation, the next step is to fully comply with the transfer pricing rules.

Transfer pricing documentation

The Panamanian transfer pricing regime adopts the following documentation structure.

Taxpayers subject to Panama’s transfer pricing regime must annually present a Transfer Pricing Return Form (TP Report – Form 930) within six months following the closing date of the fiscal period. Notably, the local tax authorities require the use of the most recent available financial information for the comparables and the tested party.

Importantly, the revised Form 930 (effective from April 9, 2018) has added a section with “Questions related to the taxpayer” and “Questions related to the multinational enterprise (MNE)” where some of the questions are related to the information required in Article 11 of Executive Decree 390, published on 24 October 2016 (regarding the master file).

The revised version of Form 930 must be used to report the information corresponding to the fiscal year 2018 and subsequent years.

Next, a Transfer Pricing Study (local file) is required. Taxpayers subject to the transfer pricing regime must be ready with a local file at the time of the submission of the Transfer Pricing Return Form. The said transfer pricing study must contain the information and analysis of related-party transactions and must be submitted to the tax authority with 45 days upon request.

A master file, providing an overall description of the MNE’s global business, is also required. This will include:

  • A general description of the value chain of the five main products and/or services offered by the MNE group, as well as a description of the geographical markets where it operates;
  • A list and brief description of the agreements for services among MNE group members that have an impact on the transactions with the taxpayer’s related parties, including the transfer pricing policy for the attribution of costs and the fixed pricing policy for intra-group services;
  • A list of intangibles, or groups of intangibles, of the MNE group that have an impact on the taxpayer’s transactions, and the related parties that hold legal ownership of the intangibles;
  • An overview of the transfer pricing policies of the MNE group related to financing arrangements and/or leverage between related parties that have an impact on the taxpayer’s transactions with related parties;
  • Detailed information on whether the taxpayer has been part of a corporate restructuring or affected by a corporate restructuring process and how the aspects of these transactions affected the taxpayer; and
  • An itemized list of transfers of intangibles in which the taxpayer has participated, and an explanation of how aspects of these transactions have affected the taxpayer.

Taxpayers must submit the master file within ten days from the date of request.

There is no country-by-country reporting requirement in Panama.

Transfer pricing penalties

Failure to submit the Transfer Pricing Report on time may result into a penalty of up to one percent of the amount of the total amount of inter-company transactions (and up to USD1m) between the taxpayer and its related parties during the period. In calculating the penalty, the gross amount of the transactions will be considered.

There is no express penalty for not maintaining contemporaneous transfer pricing documentation. Nevertheless, the penalties for non-compliance stipulated in the Tax Code should generally apply.

Where a transfer pricing adjustment is made, a penalty of ten percent over the unpaid taxes, plus interest (currently, 0.8 percent monthly interest) may be imposed.

Advance pricing agreements

Currently, Panama does not have an advance pricing agreement regime. The Tax Administration of Panama (DGI – Dirección General de Ingresos) is working on draft regulations to be published in the near future.

Transfer pricing services

Complying with Panama’s transfer pricing regime could emerge with the preparation of a preliminary study, to assess the intra-group margins in the provision of products or services.

To this extent, preliminary studies using benchmarking data from online databases and other sources can be performed by for decision making around the margins.

A full transfer pricing study – especially on management fees, interest, technical consulting, royalties, products, which are globally very possible to trigger tax inspections and adjustments – is recommended.

There are some peculiarities that have to be taken into consideration while handling with transfer pricing cases in Panama, mainly extracted from the practice of the tax authority. For instance, concerning transfer pricing analysis, the best practice is generally the use of global or regional comparables, since Panama does not have a public database containing comparable information for local companies.

In Panama, local comparables have priority over international comparables (Executive Order No. 390, 2016). However, in effect, because of the lack of information on local comparables, international comparables are well-accepted by the tax authorities.

Having said that, Panama’s transfer pricing regime expressly states that international (external) comparables can be used only if the data derives from a reliable commercial database which is created by a public information company.

Moreover, there is a need for a fresh benchmarking search every year. A transfer pricing report must be prepared annually, updating all the information that allows a correct analysis. Additionally, in practice, local tax authorities expect to see the most recent comparable information.

The future of Panama’s transfer pricing regime

As is the case with offshore jurisdictions, doing business with relation to such a country, comes with a considerable number of advantages. On the other hand, extra effort has to be made to assure compliance with the rules, mitigate potential risks, and avoid any unwanted implications. Thus, transfer pricing compliance merits considerable attention on the part of CEOs, CFOs and business owners.

In this context, industry experts deem that in the coming years (2019 and 2020) tax audits regarding transfer pricing rules will further increase.  However, already, in the past five years, the tax authority has been active in tax audits regarding transfer pricing issues, requesting transfer pricing documentation from most taxpayers.

It can, therefore, be said that Panama has joined a globally concerted effort to eradicate transfer pricing malpractices, pursuing it further by creating a specialized transfer pricing unit for tax audits.

The authors are senior tax advisors and partners of Transfer Pricing Experts’ hub in Cyprus. To contact the authors for a Mandatory Full Transfer Pricing study or a Voluntary Preliminary Study or Benchmarking Data, please visit or email to