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Panama Introduces Key Change To Transfer Pricing Rules

by Mike Godfrey, Tax-News.com, Washington

06 September 2012


Panama has adopted a legislative amendment that introduces transfer pricing rules on transactions with foreign related parties irrespective of whether one of the parties is tax resident in a country that holds a convention for the avoidance of double taxation with Panama.

Transfer pricing rules seek to ensure that transactions that occur between two associated entities are fairly taxed. Typically under the rules, the value of a transaction must be determined as though the two entities were unconnected.

Under previous Panamanian law, two related entities engaging in a transaction would only be subject to the application of transfer pricing rules if one was tax resident in a country that was party to a double tax agreement with Panama.

The law change, contained in Law No. 52 of 2012, is effective for the tax year 2012, and taxpayers newly subject to the rules must file Form 930, reporting on the use of transfer pricing rules in calculating taxable amounts in respect of transactions between connected entities, by June 2013.

The legislative amendment also alters permanent establishment rules (tax residence) in Panama, for transfer pricing purposes. To ensure that the rules cannot be avoided by structuring transactions through natural persons rather than companies, the amendment provides that an individual can also be deemed to constitute a permanent establishment.

This comprehensive report in our Intelligence Report series examines the global and national landscapes in which companies can use transfer pricing to improve their after-tax returns, including summaries of recent developments in design of the corporate supply train, the usefulness of 'offshore' in international corporate tax planning, and a section covering the spread of DTAAs and CFC laws. It is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report16.asp
TAGS: compliance | tax | business | holding company | tax compliance | tax avoidance | law | group taxation | multinationals | controlled foreign corporations (CFC) | legislation | transfer pricing | legislation amendments | Panama

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