Taxing authority and tax law
Tax authority: Tax Administration of Panama (Dirección General de Ingresos, or “DGI”)
Tax law: Law 33 enacted in 2010 established the Transfer Pricing provisions in the Tax Code (Chapter IX of Title I of the Fourth Book); Articles 762-A to 762-K
Relevant regulations and rulings
Regulations are pending to be enacted by the tax authority regarding penalties and general guidelines, including the guidelines that would provide the contents of the transfer pricing return.
According to Article 762-D of the Tax Code, transfer pricing provisions apply only to intercompany transactions conducted by a Panamanian taxpayer with related parties resident in countries with which Panama has signed treaties to avoid double taxation.
Law No. 33 would become applicable for the period commencing after the tax treaties enter into force.
OECD guidelines treatment
The OECD guidelines can be relied upon for interpretation of the rules as long as they do not contradict the Panamanian Tax Code or international tax treaties.
Priorities/pricing methods
The transfer pricing methods in Panama are: the CUP, Resale Price, Cost Plus, Profit Split, Residual Profit Split and TNMM. The selection of the method should be based on the characteristics of the transaction under analysis, the circumstances of the case and the one that best respects the arm’s length principle.
Transfer pricing penalties
Transfer pricing penalties are pending to be determined by the tax authority. However, it is expected that penalties will be issued following what other countries in the Latin American region apply.
Penalty relief
No penalty relief regime in place.
Documentation requirements
Contemporaneous transfer pricing documentation related to cross-border intercompany transactions must be kept and maintained. Documentation must include the complete identification details of the taxpayer and of the non-resident related parties with whom transactions are carried out; a detailed description of the nature, characteristics and amount of all the intercompany transactions of the taxpayer including the transfer pricing method employed. It is also necessary to include the method selection process and the specification of the price or margin, or range of prices or margins applied by the taxpayer in its intercompany transactions. Also, the documentation must be prepared considering the complexity and volume of the transactions and should include the information that the taxpayer had used to determine the evaluation of the intercompany transactions consisting of information about the multinational group the taxpayer belongs to and of the taxpayer itself.
The information of the multinational group contained in the documentation should include:
- A general description of the organizational, legal and operating structure of the group, with any relevant relating changes, as well as the identification of the related parties to whom the taxpayer conducts intercompany transactions
- The transfer pricing policy of the multinational group, if any
Documentation deadlines
Documentation must be readily available by due date of the tax return and must be kept along with the company’s accounting records. If requested by the tax authority, documentation should be provided within 45 days from the notification.
Taxpayers should file annually an information return on the transactions conducted with related parties residents in the countries with which Panama entered treaties to avoid double taxation, which shall be filed at the most six months after the closing date of the fiscal year, in the terms the tax authority approves in the regulations yet to be prepared.
Law No. 33 would become applicable for the period commencing after the tax treaties enter into force.
Statute of limitations on transfer pricing assessments
The statute of limitations on assessments is three years. The term is affected by amended returns.
Return disclosures/related-party disclosures
An information return on the transactions conducted with related parties residents in the countries with which Panama entered treaties to avoid double taxation should be filed annually. The terms are pending to be approved by the tax authority.
Audit risk/transfer pricing scrutiny
The tax authority has not yet initiated any tax audits regarding transfer pricing issues due to the fact that the transfer pricing regulations are new in the country. At the moment, the tax authority is working on the creation of the Transfer Pricing Unit within the tax authority and 2011 will be the first year of application of the transfer pricing rules.
APA opportunity
APA programs are not specifically addressed.
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