PanamaPanama

Legal ReferenceArt. 762-A, Código Fiscal de la República de Panamá, adicionado según artículo 1 de la Ley No. 33 de 2010

Legal ReferenceArt. 762-D, Código Fiscal de la República de Panamá, modificado según artículo 7 de la Ley No. 52 de 2012

Panama relies on the OECD Transfer Pricing Guidelines (OECD TPG) as a source for the interpretation of the arm’s length principle.

Legal ReferenceArt. 762-C, Código Fiscal de la República de Panamá, adicionado según artículo 1 de la Ley No. 33 de 2010.

Article 762-C: Definition of related parties. “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.”

Legal ReferenceArt. 762-F, Código Fiscal de la República de Panamá, adicionado según artículo 1 de la Ley No. 33 de 2010.

• CUP (provided)
• Resale Price (provided)
• Cost Plus (provided)
• TNMM (provided)
• Profit Split (provided)
• Other (not provided)

Legal ReferenceArt. 762-F, Código Fiscal de la República de Panamá, adicionado según artículo 1 de la Ley No. 33 de 2010.

CUP, Resale Price, Cost Plus When, due to the complexity of operations or unavailability of information, the methods described above cannot be properly applied, then, the TNMM or Profit Split method will be applied.

• Hierarchy of methods (selected)
• Most appropriate method (not selected)
• Other (if so, please explain) (not selected)

Legal ReferenceArt. 762-D, Código Fiscal de la República de Panamá, modificado según artículo 7 de la Ley No. 52 de 2012, and Art. 762-F, Código Fiscal de la República de Panamá, adicionado según artículo 1 de la Ley No. 33 de 2010.

As there are no specific regulations for commodity transactions, any of the methods could be chosen following the hierarchy. If CUP cannot be rejected and is therefore chosen as the most appropriate method, the guidance contained in paragraphs 2.18-2.22 of the TPG could be applicable.

• For controlled transactions involving commodities, the guidance contained in paragraphs 2.18-2.22 of the TPG is followed. (not selected)
• Domestic legislation mandates the use of a specific method for controlled transactions involving commodities (if so, please explain) (not selected)
• Other (if so, please explain) (selected)

The TPG are the primary source of interpretation of the arm’s length principle when applying the methodology described in the legal framework.

Legal ReferenceArt. 5, Decreto Ejecutivo No. 390 de 2016

The legal framework states that when an external (uncontrolled) domestic comparable is available, it will have priority over a foreign comparable.

Legal ReferenceArt. 762-F, Código Fiscal de la República de Panamá, adicionado según artículo 1 de la Ley No. 33 de 2010. Art. 9, Decreto Ejecutivo No. 390 de 2016

The legal framework establishes the use of the interquartile range to determine the arm’s length of a related party transaction.

Legal ReferenceArt. 762-E, Código Fiscal de la República de Panamá, adicionado según artículo 1 de la Ley No. 33 de 2010, and Art. 3, Decreto Ejecutivo 390 de 2016

The legal framework states that comparability adjustments can be made if their application improves the comparability and reliability of the results and it also describes the considerations that a taxpayer have to take into account for making adjustments, including that all adjustments must be documented by the taxpayer.

Panama’s domestic legislation or regulations do not contain specific guidance on transactions involving intangibles and tend to rely on the OECD TPG.

Legal ReferenceLey No. 69 de 2018

Law no. 69 of 2019 establishes a method for the calculation of income subject to an exemption or special tax treatment for the exploitation or sale of an intangible asset (nexus approach).

Legal ReferenceArt. 762-G, Código Fiscal de la República de Panamá, adicionado según artículo 1 de la Ley No. 33 de 2010.

The deduction of expenses for services received from a related party, such as management, legal or accounting, financial, technical services or any other, will be conditioned to the fact that the services rendered are effective and that it produces or can produce advantage or utility to the recipient. In the case of services provided jointly in favor of several related parties, and whenever it is possible to specify the service received or to quantify the particular elements that are being paid for such service, the expenses shall be charged directly to the recipient. Otherwise, if it is not possible to specify the service received or to quantify the particular elements that are being paid for such service, the expenses shall be distributed among the beneficiaries in accordance to the distribution rules. This criteria will be considered fulfilled when the distribution method is based on a variable that takes into account the nature of the service, the circumstances in which it is provided, as well as the benefits obtained or likely to be obtained by the recipients.

At the present time, Panama does not have a clear position on this matter.

Panama’s domestic legislation or regulations do not contain specific guidance on financial transactions and tend to rely on the guidance provided by the OECD.

Panama is currently reviewing interest deductibility limitation based on BEPS Action 4.

Panama’s domestic legislation or regulations do not contain specific guidance on CCAs and tend to rely on the OECD TPG.

Legal ReferenceArt. 762-I, Código Fiscal de la República de Panamá, modificado según artículo 2 de la Ley No. 114 de 2013, Art. 762-J, Código Fiscal de la República de Panamá, modificado según artículo 9 de la Ley No. 52 de 2012, y Art. 10 y Art. 11, Decreto Ejecutivo 390 de 2016 Decreto Ejecutivo No. 46 de 27 de mayo de 2019.

• Master file consistent with Annex I to Chapter V of the TPG (selected)
• Local file consistent with Annex II to Chapter V of the TPG (selected)
• Country-by-country report consistent with Annex III to Chapter V of the TPG (selected)
• Specific transfer pricing returns (separate or annexed to the tax return) (selected)
• Other (specify): (not selected)

Legal ReferenceArt. 762-I, Código Fiscal de la República de Panamá, modificado según artículo 2 de la Ley No. 114 de 2013, Art. 762-J, Código Fiscal de la República de Panamá, modificado según artículo 9 de la Ley No. 52 de 2012, Art. 762-K, Código Fiscal de la República de Panamá, modificado según artículo 9 de la Ley No. 52 de 2012, y Art. 10 y Art. 11, Decreto Ejecutivo 390 de 2016

The most relevant requirements are the following: 1. Transfer pricing return. The taxpayers that are subject to the transfer pricing legislation must present, annually, a report of the operations carried out with related parties, within six months following the closing date of the fiscal period. 2. Transfer pricing study (local file): The taxpayers that are subject to transfer pricing legislation must also have, at the time of the submission of the transfer pricing return, a transfer pricing study, which must contain the information and analysis of their transactions with related parties as required in the legal framework. This study must be submitted by the taxpayer to the Tax Authority, upon its request, within a period of forty-five (“45”) business days. Upon request. 3. Master File: The taxpayers that are subject to transfer pricing legislation must also have, at the time of the submission of the transfer pricing return, the master file, that will be required in all those cases in which the related parties carry out economic activities with each other. Upon request. All these documents, as well as any information requested by the Tax Authority must be submitted in Spanish.

Legal ReferenceArt. 762-I, Código Fiscal de la República de Panamá, modificado según artículo 2 de la Ley No. 114 de 2013,

There is a specific penalty for failing to submit the transfer pricing report in time. The penalty is 1% of the amount of aggregated operations (and up to USD 1 000 000) between the taxpayer and its related parties during the period.

Legal ReferenceDecreto Ejecutivo No. 46 de 27 de mayo de 2019.

The threshold for submitting the CbCR is 750 million Euro, based on BEPS Action 13.

Legal ReferenceTreaties to Avoid International Double Taxation Panama’s MAP Profile

MAPs procedures and guidance are currently being prepared. For further information, please refer to Panama’s MAP Profile.

• Rulings (not selected)
• Enhanced engagement programs (not selected)
• Advance Pricing Agreements (APA) (not selected)
• Mutual Agreement Procedures (selected)
• Other (please specify): (not selected)

Legal ReferenceArtículo 710, Parágrafo 4, Código Fiscal de la República de Panamá, modificado según artículo 5 de la Ley No. 52 de 2012.

Taxpayers are allowed to rectify their Tax Return Filing only once in case they have committed any mistake. These adjustments are not specific to transfer pricing matters.

Legal ReferencePanama has signed 17 Tax Treaties

In two tax treaties (with the UK and with Israel). In fifteen tax treaties.

The tax administration is currently revising and updating existing transfer pricing regulations, such as requirements for Local File and Master File documentation under BEPS Action 13. Panama is also reviewing interest deductability limitation. There are also other possible legislations/regulations that may be implemented in the short-term (general rules and transfer pricing rules).