Special Regimes of Panama apply Transfer Pricing rules as of fiscal year 2019

The Special Regimes are one of the most successful strategies to increase investments that Panama has historically had, consisting of the adoption of laws that facilitate the establishment of companies that receive tax benefits. In Panama there are several of these regimes among which are: Colon Free Zone, Panama – Pacific, City of Knowledge and Special Headquarters of Multinational Companies (SEM).

As established by Laws 52, 57, 68 and 69, as of fiscal year 2019, all these companies that are benefited through a Special Regime, must adhere to the Panamanian regulations on Transfer Prices (which are in force since 2010). Thus, in the Income Tax Affidavit corresponding to fiscal year 2019 (which is presented in March 2020) these companies must fill out boxes on transactions carried out with related parties and, in June 2020, they must submit Form 930, version 2.0 , Transfer Pricing Report. Failure to comply with this obligation can result in a fine of up to $ 1 million per year per company. Notwithstanding that, in a comprehensive audit on the subject, the DGI may make an adjustment of Transfer Prices, with the corresponding fines and interest.

It is important to highlight that a recent ruling by the Administrative Tax Court of Panama has ratified the validity of the Transfer Pricing regulations for Special Regimes.

Recommendations:

• Due to the complexity of the detail and support of the information that must be included in the Transfer Pricing Declaration (Form 930 Version 2.0), taxpayers of Special Regimes are recommended to have the Transfer Pricing Analysis prior to its presentation until June 2020. In order to avoid possible contingencies and tax damages.

• It is of great importance that the person assigned by the taxpayer is in contact with the professionals who are advising him on Transfer pricing matters in order to review the specific impact of the standard that reaches the organization and the multinational group to which they belong.

At TP Consulting Panama we are at your disposal to discuss or expand any query or doubt that you may wish to formulate with the fulfillment of this tax obligation.

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