Disclosure Requirements

Taxpayers are required to submit a transfer pricing information return (Form 930) within 6 months following the close of the tax year. Taxpayers must report information for all transactions conducted with non-resident related parties, including identification of the related parties, and the nature and amounts of the transactions in their corporate tax return, which must be filed within three months of the close of the fiscal year with a one-month extension. A new version of the transfer pricing return Form was implemented from 2018 onwards. The Form requires inter alia the following additional information:

Information on economic analysis, profitability indicators, profit/loss with or without adjustments, intangible asset transactions, and comparables;
Information on whether the taxpayer is subject to a special tax regime has been part of any restructuring, or has been involved in the transfer of intangible assets; and
Information on whether the taxpayer’s group had undergone restructuring, whether any group transactions are under administrative process or control (audit) in relation to transfer pricing, details of the ultimate parent and consolidated group revenue, and others.

Standard Documentation

Panama requires that contemporaneous documentation be prepared and maintained by the taxpayer. The documentation requirements are generally in line with OECD guidelines (Master file and Local file) and include the following.

Master File

The contents of the Master file include:

An overview of the organization, legal, and operating structure of the group, and any relevant changes;
Identification of related parties in the group with which the taxpayer conducts transactions;
The transfer pricing policy of the group;
A description of factors generating benefits for the group;
A general description of the value chain of the five main products and/or services offered by the group, as well as a description of the geographical markets where it operates;
The financial statements of the group or an equivalent report for the last financial year;
A list and a brief description of the intragroup services agreements that impact the taxpayer’s transactions, including the transfer pricing policy for the attribution of costs;
A list of intangibles or groups of intangibles that impact the taxpayer’s transactions, as well as the related party owners;
An overview of the group transfer pricing policies related to financing arrangements and/or leverage between related parties that have an impact on the taxpayer’s transactions;
A list of advance pricing agreements on transfer prices concluded by the members group related to transactions in which the taxpayer participates;
Detailed information on any corporate restructuring that the taxpayer was involved in or affected by;
Details of intangible transfers the taxpayer has participated in and an explanation of how the transactions affected the taxpayer;
A general description of the nature and value of related party transactions in which the taxpayer participates; and
A description of the functions, assets, and risks of group companies affecting transactions carried out by the taxpayer.

If the Master file is requested by the tax authorities then it must be submitted within 10 days of the request.

Local File

The contents of the Local file include:

Complete identification details of the taxpayer;
Complete identification details of all related parties with whom transactions were conducted;
A detailed description of the nature and amount of all related party transactions, including the transfer pricing method used for each;
Details of the method selection process; and
A detailed comparability analysis.

When requested by the tax authorities, the Local file must be submitted within 45 days of the request.

Country-by-Country (CbC) Reporting

CbC reporting requirements apply in Panama for reporting years beginning from 1 January 2018. The requirements apply to MNE groups resident in Panama meeting the standard EUR 750 million consolidated group revenue threshold in the previous year (or PAB equivalent as of January 2015).

The primary obligation to submit the CbC report falls on the ultimate parent entity (UPE) resident in Panama. Ultimate parent entities residing in Panama are required to submit a CbC report in an “XML Schema” within 12 months following the reporting fiscal year.

An ultimate parent entity means an entity that meets the following conditions:

The entity owns directly or indirectly sufficient interest in one or more group entities such that it is required to prepare consolidated financial statements under applicable local accounting standards, or would be required to do so if its share interest were listed on a stock exchange in its jurisdiction of tax residence; and
There is no other entity of such a multinational group that owns directly or indirectly an interest as described above.

Constituent entities of MNE groups residing in Panama are required to submit a CbC notification including the identity and fiscal residence of the reporting entity along with the fiscal period of the group by the last day of the reporting fiscal year. Though it is a one-time notification requirement, the Panamanian entities are required to update the information if there is any change in the constituent entity or ultimate parent entity information.

Panama extended the deadline for submission of Country-by-Country (CbC) reports for the fiscal year 2021 and the submission of the CbC notification to 15 January 2023.

Language of Documentation

Generally, the TP documentation and all information requested by the tax authorities must be submitted in Spanish. However, the CbC reports may be accepted in English and Spanish.

Penalties

Transfer Pricing:

If a transfer pricing adjustment is made, a late payment penalty of 1% per month of the amount due will be imposed until paid. Failure to file the transfer pricing return can result in a penalty of 1% of the gross amount of all non-resident related party transactions regardless of their nature. This penalty is capped at USD 1 million.

CbC Requirements:

Effective 11 November 2021, failure to comply with the CbC reporting requirement attracts a penalty of USD 100,000 plus PAB 5,000 per day until the non-compliance is remedied and in cases where inaccurate information is provided a fine of USD 25,000 is levied, and if the information is intentionally altered, a fine of USD 500,000 is levied.

Failure to submit CbC notification attracts penalties ranging from USD 1,000 to USD 5,000 and closure of the business for two days. Repeated failure to comply can result in fines ranging from USD 5,000 to USD 10,000 and closure of the business for 10 days (extended to up to 15 days in case of persistent failure).

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