Panama published, in Official Gazette No. 28641, Law No. 57 (the Law) (24 October 2018), which amends the multinational headquarters regime (MHQ regime) and contains provisions on applying transfer pricing regulations to transactions conducted by entities with an MHQ license.

The Law establishes that the transfer pricing rules will apply, starting with tax year 2019, to any related-party transaction that an individual or entity conducts with companies with an MHQ license.

Even though companies with an MHQ license have a reduced rate of income tax, the transfer pricing rules also will apply to transactions conducted by those companies with related parties that are: (1) established in Panama; (2) tax residents of other jurisdictions; or (3) established in the Col?n Free Zone. Additionally, the transfer pricing rules will apply if the related parties 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 MHQ regime; (4) under the City of Knowledge regime; or (5) in any other current or future free zones or special economic areas.

In all cases, the application of the transfer pricing regulations must accord with the provisions of the Fiscal Code (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.

For additional information with respect to this Alert, please contact the following:

Ernst & Young Limited Corp., Panama City

• Luis Eduardo Ocando | luis.ocando@pa.ey.com
• María José Luna | maria.luna@pa.ey.com
• Isabel Chiri | isabel.chiri@pa.ey.com

Ernst & Young, S.A., San José

• Paul A De Haan | paul.dehaan@cr.ey.com
• Rafael Sayagues | rafael.sayagues@ey.com

Ernst & Young, LLP, Latin American Business Center, New York

• Ana Mingramm | ana.mingramm@ey.com
• Enrique Perez Grovas | enrique.perezgrovas@ey.com
• Pablo Wejcman | pablo.wejcman@ey.com

Ernst & Young LLP (United Kingdom), Latin American Business Center, London

• Jose Padilla | jpadilla@uk.ey.com

Ernst & Young Tax Co., Latin American Business Center, Japan & Asia Pacific

• Raul Moreno, Tokyo | raul.moreno@jp.ey.com
• Luis Coronado, Singapore | luis.coronado@sg.ey.com 

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