PANAMA Law and Practice Contributed by: Rafael Rivera, Malvis Mina, Nicole Pérez and Carolina Lino, BDO Panama
be destined for sale in the local or internation - al market will enjoy the following benefits: (a) their activities, operations, transactions, procedures, and transfer of movable and immovable property, the purchase and import of construction equipment and materials, raw materials, equipment, machinery, tools, accessories, supplies, and all goods or services required for their operations, including capital, will be exempt from direct national taxes, includ - ing taxes on patents or licences. 5.4 Tax Consolidation In Panama, tax consolidation is not available or applicable, as it is in order jurisdictions. In Panama, each operative company is obliged to prepare and file the income tax return and pay the corresponding taxes. 5.5 Thin Capitalisation Rules and Other Limitations Currently, in Panama there are no capitalisation rules or exact equivalent rules. However, Pana - ma has adopted Transfer Pricing rules, under the local legislation. There is also a restriction on the interest deductibility, ie, only interest related to the operation of the business is deductible. If the loan is used for investments outside of Panama, the interest will not be deductible. 5.6 Transfer Pricing Panama applies transfer pricing rules. Cross- border intercompany transactions conducted by Panamanian taxpayers are subject to transfer- pricing obligations if the transactions result in income, costs or expenses that are considered in the determination of taxable income. The transfer pricing rules are based in the arm’s length principle established in the Organization for Economic Co-operation and development
(OECD) Transfer Pricing Guidelines for Multina - tional Enterprises and Tax Administrations. An annual statement of transactions (Form 930) with related parties must be submitted to the tax authorities within six months of the end of the fiscal year. In addition, taxpayers must prepare a transfer pricing study and make it available to the tax authorities. If the Form 930 is not filed, a 1% fine capped at USD1 million applies to the gross amount of the transactions with related parties. 5.7 Anti-Evasion Rules According to the Tax Procedure Code, the Pana - manian Tax Authorities may disregard the adop - tion of legal forms when premeditated acts are carried out with the sole purpose of avoiding the payment of taxes or obtaining some type of tax advantage, thereby violating the obligation to contribute with sufficient will and knowledge. Moreover, Panamanian legislation defines tax avoidance as the performance of acts or trans - actions for a purpose other than that established by law, and with no justification other than to reduce the tax burden of the person performing them, including to obtain undue tax credits, or, in general, some tax benefit in violation of the tax law. 5.8 Tariffs Currently, Panama uses the Harmonized System (HS) to classify goods, and a large portion of products have low or zero tariffs. Panama par - ticipates in free trade agreements, such as the Trade Promotion Agreement with the USA and the Agreement with the EU, allowing for prefer - ential tariffs.
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