Panama: Transfer Pricing rules applying to a tax haven jurisdiction? It does happen.

Dealing with cases which have potential Transfer Pricing (TP) implications in Panama, requires a high level of expertise. Given that Panama is not an OECD member; an extended experience is necessary where the OECD practices are not applicable.

The TP legal framework of Panama constitutes a hybrid since the OECD TP Guidelines are not directly in force. However, these guidelines and rules shall not contradict the Panamanian Tax Law. Panama’s case bears no resemblance to other countries where the national legal framework co-exists and interacts with OECD Guidelines. Hence, a TP study from an expert with considerable experience with non OECD jurisdictions is strongly recommended.

Recognition of related parties

The common case among OECD countries is to set a specific threshold to define liable entities to TP rules. The Panama case is special because there is no rule setting any threshold for the application of the TP legislation. As a result, transactions with any related parties abroad are falling into the scope of the said legislation.

The definition of the “related parties” notion is provided by the 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”.

Transfer Pricing compliance in Panama

Once a company ascertains that it falls into the TP legislation, the next step is to comply with the rules. The Panamanian TP legal framework adopts the following documentation structure:

1.Form 930

A Transfer Pricing Return Form (TP Report – Form 930). In this report, the obliged taxpayers must present the operations carried out with related parties. This report is prepared annually, updating all the information that allows a correct TP analysis. The competent officer of the company shall submit the report 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 party under review.

Note that the “new” Form 930 has added a section with “Questions related to the taxpayer” and “Questions related to the multinational enterprise (MNE)”. Some of the questions refer to the information of Article 11 of Executive Decree 390. The Panama authority published this Decree on 24 October 2016 regarding the Master File. The new version of the Form 930 is effective from 9 April 2018. It shall include information corresponding to the fiscal year 2018 and subsequent years.

2. Local file

The taxpayers, subject to the TP legislation, must also have a Local File when submitting the TP Return Form. This TP study must contain the information and analysis of controlled transactions. The Tax Authority may request and the taxpayer must submit this study within a period of 45 business days.

3. A Master File

A Master file provides an overall description of the MNE’s global business. Amongst them, one has to submit:

  • A general description of the value chain of the five main products and/or services offered by the MNE group. A description of the geographical markets where it operates is also indispensable;
  • A list and brief description of the agreements for services among MNE group members which affect the intragroup transactions. This analysis shall include the transfer pricing policy for the attribution of costs and the pricing policy for intragroup services;
  • A list of intangibles, or groups of intangibles, of the MNE group that have an impact on the taxpayer’s transactions. A special consideration shall be provided on the related parties that hold legal ownership of the intangibles;
  • An overview of the TP policies of the group on financing arrangements that have an impact on the taxpayer’s transactions;
  • Detailed information on whether the taxpayer has been part of a corporate restructuring or affected by a corporate restructuring process;
  • An thorough list of transfers of intangibles in which the taxpayer has participated;

In case the tax authorities request the master file, the taxpayer has only 10 days to submit it. Unlike what happens in the majority of countries, TP law in Panama does not necessitate any CbCR.


There is a specific penalty for failing to submit the TP report timely. The penalty is up to 1% of the total amount of intercompany transactions (and up to USD 1.000.000). For the penalty calculation, the tax inspectors consider the gross amount of the transactions. When taxpayers fail to maintain contemporaneous TP documentation, no express monetary penalties are specified in the TP rules. Nevertheless, the monetary penalties for noncompliance set forth in the Tax Code should apply.

Furthermore, if the audit results in a TP income adjustment, a penalty of 10% over the unpaid taxes is imposed. The interest on the difference is charged at a rate of 0.8% monthly.

What about Advance Pricing Agreements (APAs)?

There is no an APA program in Panama. However, the Tax Administration (DGI – Dirección General de Ingresos) is currently working on draft regulations.

Provision of Transfer Pricing Services

Complying with TP regulation in Panama could emerge with the preparation of a preliminary study. Such a stud assists management to assess the intragroup margins in the provision of products or services. To this extent, preliminary studies can be performed by for decision making around the margins upon request. Keep in mind that we use benchmarking data from online databases (such as Thompson Reuters, Amadeus, Orbis) and reliable sources.

Moreover, management fees, interest, technical consulting, royalties, products, are globally very possible to trigger tax inspections and adjustments. Thus, a full TP study – especially on these matters- is a must.

Given the practice of the DGI, you should take into account some peculiarities while handling with TP cases in Panama. For instance, Panama does not have a public database containing comparable information for local companies. Therefore, concerning a TP analysis, the best practice is generally the use of global or regional comparables.

In all fairness, under Panamanian regulations, local comparables have priority over international comparables (Executive Order No. 390, 2016). However, international comparables are acceptable by the tax authorities because of the said lack of information on local comparables. Having said that, the Panamanian TP law 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. The executives of a company shall prepare a TP study annually, updating all the information that allows a correct analysis. Additionally, in practice, local tax authorities expect to see the most recent comparable information.


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, an extra effort is necessary so as to assure compliance with the rules, mitigate potential risks, that way optimizing the results of an activity. Thus, TP compliance constitutes a realm which necessitates full attention by the part of a CEO, CFOs or a business owner.

In this context, industry experts deem that in the following years (i.e. 2019 and 2020) tax audits regarding TP law will be in the increase.  However, already, in the past five years, the DGI has been active in tax audits regarding transfer pricing issues, requesting TP documentation from most taxpayers. Hence it is obvious that Panama has joined a globally effort to eradicate TP malpractices, pursuing it further by creating on this purpose a specialized TP unit for tax audits.

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