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Panama: Free zones, preferential tax regimes and special economic areas are now subject to transfer pricing regulations

Panama published, in Official Gazette No. 28684-B, Law No. 69 (the Law) (26 December 2018), which establishes the method for calculating income derived from the “transfer or exploitation” of intellectual property assets and also includes provisions on applying transfer pricing regulations to entities under preferential tax regimes.

The Law adds Article 762-L to the Fiscal Code (the Code), which establishes that, starting with tax year 2019, the transfer pricing rules will apply to any transaction that an individual or entity conducts with related parties that are located in the Colόn Free Zone, and operate: (1) in the Oil Free Zone (Zona Libre de Petróleo) under Cabinet Decree 36 of 2003; (2) in the Special Economic Area of Panama-Pacifico; (3) under the multinational headquarters regime; (5) under the City of Knowledge regime; or (6) in any other current or future free zones or special economic areas.

Even though individuals or entities that operate in one of the listed zones, special economic areas and preferential tax regimes are exempt from, or have a reduced rate of, income tax, the transfer pricing rules also will apply to transactions conducted by those entities with related parties that are: (1) located in Panama; (2) tax residents of other jurisdictions; (3) established in any other free zones or special economic areas; or (4) operate under a preferential tax regime.

In all cases, the application of the transfer pricing regulations must accord with the provisions of the Code, except for the provisions of Article 762-D of the Code. Article 762-D of the Code establishes that transactions that a taxpayer conducts with related parties that are tax residents of other jurisdictions are subject to the transfer pricing regulations if those transactions affect the determination of taxable income for income tax purposes, in the tax year in which the transaction is reported or takes place.

EYG no. 012719-18Gbl

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