In 2010, the Republic of Panama added to its Tax Code a new
chapter regarding the adequacy of double tax conventions for
the avoidance of double taxation. The arm's length principle
was defined, as well as the term related parties, and the scope
of application of transfer pricing in the Republic of Panama.
Operations realised by Panamanian tax-payers with related
parties will be valued according to the arm's length principle.
In other words, ordinary as well as extraordinary income, costs
and necessary deductions to realise operations should be
determined based on the price and amount agreed by independent
parties under similar circumstances.
In the Republic of Panama, two or more parties are
considered related whenever one of them participates directly
or indirectly in the administration, control or capital of the
other party, or even when a person or group of persons
participates directly or indirectly in the control,
administration or capital of these related parties.
At first, the scope of transfer pricing in the Republic of
Panama only included operations realised between related
parties, considered as fiscal residents of countries with which
the Republic of Panama had celebrated a Double Tax Convention
for the avoidance of double taxation. Subsequently, in 2012,
the scope was modified, and so it included every Panamanian
tax-payer that realised an operation with a related party,
which was a fiscal resident of another jurisdiction.
Related parties, as defined under Panamanian legislation,
must file a transfer pricing form within the next six months
after the closing of the tax-payer's fiscal period. In the
event a tax-payer fails to provide this study, a penalty of up
to $1 million will be automatically charged to the taxpayer.
Further, operations with related parties will be included in
the taxpayer's tax return, with all of the related data.
Transfer pricing is certainly an ongoing subject in the
Republic of Panama, as well as in the international taxation
area. We believe that the Panamanian tax authorities will soon
have sufficient means to achieve the specific control and
supervision transfer pricing demands.
Anna Cristina Valdes