Intercompany Services: The importance of maintaining substance in intercompany transactions in Panama
Panama City, June 12, 2023
In today’s globalized business landscape, companies are constantly faced with the need to transact between their different entities. These intercompany transactions, also known as intercompany services, are essential for the efficient operation of multinational companies. However, it is crucial to maintain the substance and comply with the legal and tax requirements established in each jurisdiction. In this article, we will explore the importance of maintaining substance in intercompany transactions in Panama, highlighting the key aspects that companies must consider to comply with documentary obligations, the symmetry of information in financial reports, the development of the Profit Test Report and the transfer pricing study as support for Form 930.
Documentary obligation:
In intercompany transactions, it is essential to have adequate documentation that supports the nature of the operations carried out and demonstrates that they were carried out under market conditions. Panama, like other countries, requires companies to keep accurate and detailed records of all intercompany transactions, including contracts, invoices, price agreements, and any other pertinent documentation. These records are essential to support the economic substance of the operations and to comply with tax and customs regulations.
Symmetry of information in financial reports:
Information symmetry refers to the consistency and coherence of the financial reports of the different entities of a multinational company. In order to maintain substance in intercompany transactions in Panama, it is essential that the financial statements, income statement and other reports are consistent and accurately reflect the transactions carried out between the related entities. This ensures that financial information is transparent and complete, thus facilitating decision-making and compliance with tax regulations.
Development of the Profit Test Report:
The Profit Test Report is a tool used to assess the economic substance of intercompany transactions. This report seeks to demonstrate that transactions between related entities generate real economic benefits and are in line with market conditions. For example, in Peru, the Profit Test Report is used to assess whether a multinational company’s transfer pricing complies with arm’s length principles. This report is crucial to support the economic substance of the transactions and avoid tax risks and penalties.
Transfer Pricing Study or Local Report as support for Form 930:
In Panama, the transfer pricing study, also known as a Local Report, is a fundamental requirement for companies that carry out intercompany transactions. The objective of this study is to analyze and justify the prices and conditions agreed in operations between related entities, ensuring that they are consistent with market prices. The Local Report is used as support for Form 930, which must be filed with the Panamanian tax authorities. Complying with this requirement is essential to avoid tax disputes and ensure the economic substance of transactions.
In conclusion, maintaining substance in intercompany transactions is vitally important in today’s business environment. In Panama, complying with documentary obligations, maintaining information symmetry in financial reports, developing the Profit Test Report and carrying out the transfer pricing study as support for Form 930 are crucial aspects to guarantee transparency, comply with regulations tax and avoid legal risks and sanctions. Companies must pay special attention to these aspects and work in collaboration with specialized advisors in the field of transfer pricing and international taxation to ensure proper compliance with all current regulations.
For more information, contact us at rhurtado@tpconsulting.com or by phone (507) 203-6771 | (507) 203-6770 | (507) 221-8664.
