Perspectives

Transfer Pricing in Panama: Benchmarking and Post-BEPS Defence

Mgter. Liz A. Prestán O.August 22, 2026Tax

What is Benchmarking in Transfer Pricing?

Benchmarking is a comparative study that seeks to demonstrate that the price agreed upon between two related companies is comparable to the price that two independent companies would agree upon under equivalent market conditions.

In simple terms: if the Panamanian subsidiary of a multinational group purchases a service from its parent company in Spain, the tax authority will want to know if that price reflects the economic reality of the transaction or if, on the contrary, it was artificially set to shift profits to another jurisdiction. Benchmarking answers this question by identifying comparable transactions in the market and demonstrating that the intercompany price falls within an acceptable range according to the arm’s length principle.

For this purpose, specialized databases such as Bureau van Dijk and similar providers compile financial information from thousands of independent companies, allowing a suitable comparison range to be constructed.

The limitations of this tool, however, have become increasingly evident in the post-BEPS environment: benchmarking demonstrates that the price is reasonable, but it does not demonstrate that the service was necessary, nor that it was actually provided. For this reason, it must now be supplemented with additional substantive documentation. In short: benchmarking states how much was charged; post-BEPS documentation must explain the why, the purpose, and the how.

The previous model: benchmarking as a sufficient shield

For years, comparative benchmarking was the cornerstone of multinational groups’ transfer pricing policies. In practice, having a technically sound benchmarking study was enough to structure a company’s tax defense, guide the strategy of its legal advisors, and support its position in the event of a dispute with the tax authorities.

The Turning Point: The Emergence of the BEPS Project

The approval of the OECD’s BEPS (Base Erosion and Profit Shifting) Action Plan marked an irreversible paradigm shift in this area. Benchmarking, considered in isolation, is no longer an effective defense tool: presenting it as the sole evidence no longer neutralizes the scrutiny of tax authorities, who now demand a substantially deeper analysis, focused on the economic reality of the transaction and not solely on its price range.

The New Standard: Substance, Necessity, and Materiality

In the post-BEPS environment, successfully maintaining a transfer pricing position requires demonstrating, at a minimum, three elements:

The need for the service. It is not enough to state that a service was contracted with a related party; it is necessary to demonstrate why that service was indeed necessary for the business and why it could not be provided with the local entity’s own resources.
The materiality of the service. It must be proven that the service was effectively and actually provided, through concrete documentation that supports its execution—emails, deliverables, reports, work logs, among other means of proof.
Contractual consistency. Contracts signed between related parties must have all the supporting documentation that justifies the legal relationship, the agreed price, and the agreed conditions, in a manner consistent with the actual operation of the business.

An illustrative example: the case of technology services

Consider the case of a company domiciled in Colombia that has ten systems engineers on its payroll, but which also contracts technology services with an affiliated company located in a free trade zone in Uruguay. In this scenario, simply presenting benchmarking data no longer solves the problem: the tax authority will ask what the company’s engineers are used for and what the Uruguayan company actually does. If it is not possible to demonstrate the necessity and materiality of the service provided, the transaction is vulnerable to being disregarded or reclassified by the tax administration.

Benchmarking hasn’t disappeared as a tool, but it’s no longer a complete solution, becoming merely one component within a more robust compliance strategy. Presenting it as the sole basis for compliance now constitutes a tax risk, not a defense. The key lies in building documentation that demonstrates real economic substance, justified need, and effective service delivery.

Transfer pricing documentation as a prerequisite to financial closing

The documentation supporting transactions between related parties cannot be treated as a secondary procedure or a reactive formality in anticipation of a potential audit. The supporting documentation for transfer pricing must be prepared, organized, and available before the closing of the financial statements for the corresponding period.

This means that, at the time of closing, the company must have:

Current contracts with related parties, duly signed and updated.
The justification for the need for each intercompany service or transaction.
Evidence that the service was actually performed or the relevant goods were delivered.
The transfer pricing study that demonstrates compliance with the arm’s length principle.
All supporting documentation that links the transaction to its true economic substance.

Documenting after the closing not only weakens the company’s defenses but can also be interpreted by the tax authorities as the artificial fabrication of evidence. The strength of the documentation depends largely on its preparation being contemporaneous with the transaction, not subsequent to it.

One point that deserves special attention at this stage is the treatment of royalties, which are subject to review in virtually all jurisdictions and which, consequently, constitute one of the points of greatest tax exposure that must be resolved before the preparation of the closing financial statement.

The transfer pricing dispute: defense, expert evidence, and procedural strategy

When the Tax Authority Discredits the Taxpayer’s Method

When the tax authorities challenge the transfer pricing method used, the taxpayer cannot simply reiterate their original position. They must be prepared to actively defend each disputed element, offering solid alternative arguments that support both the choice of method and the validity of the benchmarking presented. Exhausting available catalogs and databases is necessary, but insufficient if the company also lacks a clear procedural strategy.

Support from Administrative Courts for BEPS Standards

When a tax court bases its decision on BEPS guidelines, the standard of proof is significantly raised. This confirms that the analysis in this area can no longer be merely formal: the economic substance of the transaction must be fully and convincingly demonstrated to the judge.

The expert opinion as preponderant evidence

In transfer pricing matters, the expert report constitutes the most significant evidence in contentious proceedings. Its function is twofold: first, to demonstrate that the transfer pricing method used is technically correct; and second, to prove that the transaction has real economic substance. Beyond its technical rigor, the report also fulfills an essential communicative role, allowing the judge to understand the core of a dispute that, by its nature, is highly specialized and, in principle, outside the scope of ordinary legal knowledge.

The Expert as Strategist: Anticipation and Evidentiary Connection

The expert cannot limit themselves to issuing an isolated technical opinion. Their work also requires an indispensable strategic component:

They must anticipate the objections that the tax authority will foreseeably raise, preparing their report as a preemptive response to these questions.
They must anticipate the content and form of the questions during the examination, since the way these are formulated can influence the judge’s perception. Seemingly technical questions, such as whether the service was actually paid for or whether the expert directly advised the company,can carry a suggestive weight capable of swaying the judge’s assessment.
The expert report should be treated as active rather than static evidence. It must connect with the other evidence in the file, reinforcing it and giving it coherence instead of standing as an isolated document.

In short, in a transfer pricing dispute, the technical quality of the expert opinion is as crucial as the expert’s ability to anticipate the debate and clearly communicate the substance of the matter to the decision-maker.

Supporting a benchmarking study before the DGI

In Panama, a defensible study should demonstrate a reasoned selection of method, transaction comparability, the adjustments made and consistency between contracts, invoicing, accounting and the parties’ actual conduct. A statistical range does not replace that evidentiary trail.

Documentation should be prepared proactively. Article 762-J of the Tax Code and Executive Decree 390 of 2016 require maintaining a study that explains the functional analysis, risks assumed, assets used and methodology applied. Form 930 must also be filed within six months after the fiscal year closes; the DGI announced version 3 for fiscal year 2026 onwards.

The most useful exercise therefore begins not with a search for comparables, but by delineating the transaction: who provides the service, what capabilities that provider has, what benefit the recipient receives and what contemporaneous evidence supports it. Only then should the appropriate benchmark be constructed.

Conclusion

Benchmarking remains a transfer pricing tool, but it is no longer a sufficient defense on its own. In the post-BEPS environment, a sound tax position requires related-party prices to be supported by real economic substance, demonstrable need and actual provision of the relevant service or goods. Comparative experience, from administrative tax disputes to the Apple case in the European Union, confirms that authorities and courts examine economic reality beyond formal consistency alone. Companies and their advisers must document transactions as they occur, build comprehensive evidentiary files and prepare for potential disputes with the same strategic foresight used to structure the transactions themselves.

Official sources and related reading

This article provides general information and legal analysis. It does not constitute advice for a particular case.