Executive Decree - Transfer Pricing

05 January 2017


Changes to the Transfer Pricing rules in Panama. On October 24, Executive Order N° 390 which amends the Arm’s Length principle of Chapter IX of Title I, book 4 of the Fiscal Code which subrogates Executive Decree N° 958 of August 7, 2013, was issued.

Effective Date

This decree will be effective as of January 1, 2017.

Important Items

The new decree includes 14 items, setting out how the Tax Authorities want taxpayers to file their transfer pricing studies.

Some of the main items include:

  1. It strictly states in its Article 1 that, as a general rule “operations from incomes, costs and deductions, must be analyzed one transaction at a time” unless, by their nature, they must be collectively analyzed,
  2. Information from “several periods” may be used as long as they add value to the transfer pricing analysis.
  3. Comparability of adjustments, from studies filed by the taxpayers, will be applicable, and accepted by the Department of Revenue, as long as:
    1. Improve the trustworthiness of the analysis,
    2. Accountable differences exist between the analyzed party and the comparable parties,
    3. Segmentation of the income statement were possible, setting aside “non-comparable” transactions which affect the analysis,  
    4. There were differences in functions, assets and risks between the tested party and the comparables,
    5. The adjustments made are not significant,
  4. Comparable transaction election must be justified, indicating the characteristics of the goods and services; detail of the tasks, assets and risks; contract terms; and economic circumstances, among other factors.
  5. The Department of Revenue sets its preference in the “internal” comparables, before the “external”.  Therefore, the taxpayer must document every possible comparable transaction to those made with related parties,
  6. In addition to the analysis, the taxpayer must include in the study, detailed information of the transactions made, chart flow, its related companies and the type of relationship, detail of the competitors, analysis of the sector where it operates, among others.
  7. The taxpayer must include in the study, detailed information of the business Group, like, for example, the business structure.