Benchmark: A priori pricing of related party transactions

December 1, 2021

Taxpayers that have transactions with related parties resident outside Panama must set the prices of such transactions under the arm’s length principle. That is to say, they must be set under the “fair market price”, which is no more than setting the prices of our operations with related parties within the price range or amount that would have been agreed with independent parties under similar circumstances.

In this regard, do you know whether the amounts or prices set for your related party transactions are within the range permitted under the arm’s length principle? If the transactions are out of range, this may represent you material income tax contingencies.

Market studies are an a priori mathematical exercise and are an indispensable tool to comply with the guidelines of the arm’s length principle, which is the cornerstone of the Transfer Pricing regime, to determine the arm’s length ranges for a given transaction.

Remember that each transaction must be reviewed independently to determine the ranges for each transaction. There are some cases where even with local related parties the value of such transactions must be set based on the “fair market price”.

More information: [email protected].