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Panama – Transfer Pricing (2025)

Panama’s transfer pricing framework is embedded in the Tax Code of the Republic of Panama and complemented by executive decrees. The arm’s length principle is expressly referenced in Art. 762‑A of the Tax Code, added pursuant to article 1 of Law No. 33 of 2010. Key provisions on methods, documentation and penalties are contained in Articles 762‑C, 762‑D, 762‑E, 762‑F, 762‑G, 762‑I, 762‑J and 762‑K of the Tax Code, as amended or supplemented by instruments such as Law No. 52 of 2012, Law No. 114 of 2013, Executive Decree No. 390 of 2016 and Executive Decree No. 46 of 27 May 2019. These rules apply to transactions between related parties as defined in the legislation and extend to interactions with permanent establishments where applicable.

Arm’s length principle and the role of the OECD Guidelines

Panama incorporates the arm’s length principle into domestic law and expressly relies on the OECD Transfer Pricing Guidelines (TPG) as the interpretative source for applying that principle. Article 762‑D of the Tax Code, as modified by article 7 of Law No. 52 of 2012, establishes the OECD TPG as a primary interpretative tool. Tax administration practice and domestic regulations therefore draw on the OECD material for methodological and comparability issues when applying the arm’s length standard.

The statutory definition of related parties is provided in Art. 762‑C of the Tax Code, added pursuant to article 1 of Law No. 33 of 2010. Under that provision, two or more persons are related when one participates directly or indirectly in the management, control or capital of the other, or when a third person or group participates directly or indirectly in the management, control or capital of those persons. The rule explicitly includes the head office and its permanent establishments, as well as the persons referred to above and their permanent establishments. The concept of a permanent establishment is to be understood according to Art. 762‑M of the same chapter or, where applicable, under the text of Panama’s tax treaties.

Methods and application criteria

Panama’s domestic law sets out recognised transfer pricing methods and prescribes a hierarchy for their application. Article 762‑F of the Tax Code, added per article 1 of Law No. 33 of 2010, lists the methods: comparable uncontrolled price (CUP), resale price, cost plus, transactional net margin method (TNMM) and profit split. The legal framework establishes a hierarchy whereby CUP, Resale Price and Cost Plus are preferred methods; when, due to operational complexity or lack of information, these methods cannot be properly applied, the TNMM or Profit Split shall be used. This procedural hierarchy is explicitly set out in Art. 762‑F.

Comparability and ranges

Panama follows the comparability analysis guidance in Chapter III of the OECD TPG, with those Guidelines serving as the principal interpretative reference. Executive Decree No. 390 of 2016 (Art. 5) establishes a domestic preference: when an external uncontrolled domestic comparable is available it should take priority over a foreign comparable. The legislation does not permit the use of secret comparables. Article 762‑F and Art. 9 of Executive Decree No. 390 of 2016 explicitly provide for the use of the interquartile range as the statistical measure to determine whether remuneration is at arm’s length. Comparability adjustments are allowed where they improve comparability and reliability; the rules for such adjustments and the requirement that they be documented are set out in Art. 762‑E, added by article 1 of Law No. 33 of 2010, and Art. 3 of Executive Decree No. 390 of 2016.

Documentation and reporting

Panama requires taxpayers subject to transfer pricing rules to prepare and maintain transfer pricing documentation at multiple levels and to file an annual transfer pricing return. The legal regime requires an annual transfer pricing report that must be filed within six months following the taxpayer’s fiscal year end. Taxpayers must also have a local file (transfer pricing study) at the time of filing the transfer pricing return; this local file must contain the information and analysis of the related‑party transactions as required by law and must be furnished to the Tax Authority upon request within forty‑five (45) business days. The master file must likewise be available at filing and will be required by the Tax Authority in cases where related parties carry out economic activities among them. All documentation and any information requested by the Tax Authority must be submitted in Spanish, as provided in Arts. 762‑I, 762‑J and 762‑K of the Tax Code and Arts. 10 and 11 of Executive Decree No. 390 of 2016. Regarding country‑by‑country reporting, Panama applies the BEPS Action 13 standard and has set the CbC reporting threshold at EUR 750 million, according to Executive Decree No. 46 of 27 May 2019.

Penalties and other considerations

Panama’s regime includes specific penalties for failure to comply with transfer pricing documentation requirements. Art. 762‑I of the Tax Code, as amended by article 2 of Law No. 114 of 2013, establishes a penalty for late filing of the transfer pricing report equal to 1% of the amount of aggregated transactions between the taxpayer and its related parties during the period, capped at USD 1,000,000. Taxpayers are permitted to rectify a tax return only once in case of error under Artículo 710, Paragraph 4, of the Tax Code, modified by article 5 of Law No. 52 of 2012; this rectification mechanism is not specific to transfer pricing. The profile indicates that Panama does not effect secondary adjustments as part of its administrative practice. With respect to profit attribution to permanent establishments, Panama does not broadly apply the Authorised OECD Approach (AOA) across its tax treaty network: the AOA is applied in two treaties (with the United Kingdom and Israel) and not applied in fifteen treaties, with Panama having signed 17 tax treaties in total according to the profile.

APAs and dispute resolution procedures

Panama provides access to Mutual Agreement Procedures (MAPs) as the available mechanism to prevent and resolve transfer pricing disputes; the profile notes that MAP procedures and guidance are currently being prepared and refers taxpayers to Panama’s MAP Profile for further details. The profile does not indicate an active APA programme: Advance Pricing Agreements (whether unilateral, bilateral or multilateral) are not listed as available mechanisms in the provided information.

Safe harbours and simplification measures

Panama does not have rules on safe harbours for particular industries, taxpayer classes or transaction types, nor does the profile report other simplification measures beyond the standard documentation and reporting framework.

Other legislative and administrative matters

The tax administration in Panama is in the process of revising and updating its transfer pricing regulations, including Local File and Master File requirements in line with BEPS Action 13. The country is also reviewing interest deductibility limitations consistent with BEPS Action 4. Panama’s domestic law does not contain specific guidance on Cost Contribution Arrangements (CCAs) or on financial transactions; in those areas the jurisdiction relies on the OECD TPG. For intra‑group services, Art. 762‑G conditions the deduction of expenses on the effectiveness of services and the benefit to the recipient, and prescribes allocation rules where services are provided jointly and cannot be specifically identified, provided the allocation method is based on a variable that reflects the nature of the service, the circumstances of provision and the benefits obtained.

Conclusion

Panama has established a comprehensive domestic framework for transfer pricing that codifies the arm’s length principle and formally integrates the OECD Transfer Pricing Guidelines into its interpretative arsenal. The law prescribes recognised methods and a hierarchy for their application, mandates documentation aligned with BEPS standards and imposes meaningful penalties for non‑compliance. However, certain subject‑matter areas—such as CCAs, specific guidance on financial transactions and a domestic framework for intangibles—remain to be further developed in national regulation, and the tax authority is actively updating guidance to address these gaps.

References

For further information and country profiles, see: https://www.oecd.org/en/topics/sub-issues/transfer-pricing/transfer-pricing-country-profiles.html

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