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OBLIGATION TO CONDUCT TRANSFER PRICING STUDIES
The concept of Transfer Pricing was introduced in the Republic of Panama through Law 33 in 2010. In principle, the rule applied only to transactions with related companies that were residents of countries with which Panama had concluded a Double Taxation Treaty (Spain and Mexico).
Subsequently, Law 52 of August 2012 to Article 762-D of the Fiscal Code, establishes that those operations that the taxpayer carries out with its related parties abroad will be subject to Transfer Pricing, regardless if they have Treaties to Avoid Double Taxation with Panama.
As of fiscal year 2012, Article 762-J establishes the obligation to conduct a transfer pricing study to support the information presented in Report 930 in which income and/or expense operations with related parties are declared. The concept of related parties is determinant to establish the obligation to perform transfer pricing studies, however, this is a topic that we will deepen in another newsletter.
The Tax Code in article 762 D describes that the scope of application of transfer pricing studies covers any transaction that a taxpayer makes with related parties resident abroad that has effects as income, costs or deductions in the determination of the tax base for income tax purposes of the year in which the transaction is declared or carried out.
The scope of application described above, and especially what is described as "in the determination of the taxable base for Income Tax purposes", led to positions to the contrary, as to whether the Colon Free Zone companies that had transactions with their related parties abroad, were subject to transfer pricing studies, since if all their operations were foreign source, they would not be subject to the payment of income tax, however they are subject to the payment of complementary tax and dividends.
Our position as to the obligatory nature of these companies is that, in one way or another, transactions with related parties affect the payment of the complementary and dividend tax and the taxable base to calculate the complementary tax.
