TP regulations: impacts and strategies in Guatemala, El Salvador, and Panama
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TP regulations: impacts and strategies in Guatemala, El Salvador, and Panama

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Mario Coyoy of Deloitte S-LATAM and Michelle Martinelli of Deloitte Panama note increasing transfer pricing scrutiny in several Central American jurisdictions as they step up their attempts to enhance transparency and ensure compliance

Transfer pricing (TP) audits in Guatemala, El Salvador, and Panama are continually evolving. These countries are intensifying efforts to ensure compliance with tax regulations through advanced analytical tools and targeted reviews. From identifying evasive practices to the technical validation of transactions, these initiatives aim to ensure that related-party transactions adhere to the arm's-length principle and economic substance.


The Superintendency of Tax Administration (SAT) of Guatemala has intensified its efforts to identify taxpayers with low or no taxation by using mathematical models, statistics, and data analytics. Tools such as the tax pressure index (IPT) and the effective income tax rate (ETR) enable sectoral comparative analyses, classifying taxpayers according to their income tax regime, economic activity, size, geographical location, and fiscal attributes. Taxpayers with IPT and/or ETR figures below the observed levels in their economic sector will likely be subject to audits.

SAT has detected practices of linking local companies designed to minimise the tax burden of business groups. In light of this, the importance of TP analysis between local related parties is emphasised. This analysis allows taxpayers to demonstrate that their transactions comply with the arm’s-length principle, providing legal certainty and avoiding fiscal risks.

Additionally, SAT is promoting the use of advance pricing agreements (APAs), a tool that allows taxpayers and the tax authority to agree in advance on the valuation methods for transactions between related parties. Although common in countries with extensive TP experience, APAs are relatively new in Guatemala and face distrust from taxpayers due to the amount of information required and the subjectivity of the process.

To encourage the adoption of APAs, SAT has initiated technical meetings with taxpayers and experts to discuss the pros and cons, methodologies, delivery times, and necessary documentation. The main challenge is to build trust among taxpayers and ensure that submitting an APA is a right and not an obligation, and avoiding a denial becoming a reason for an audit.

Therefore, SAT is promoting a more rigorous and transparent fiscal environment in Guatemala, focusing on the proper application of TP regulations and the use of APAs to ensure fiscal compliance and legal certainty.

El Salvador

Since the beginning of TP regulation in El Salvador, the tax authority has undertaken various initiatives to improve the implementation of the TP regime in the tax environment. In the early years, the main topics in audits were formal matters in which fines for non-compliance were calculated based on the company’s equity, with a similar approach maintained now. In recent years, the tax authority has focused its efforts on specific reviews, such as the following:

· Structure of the local file and technical validation of the transactions, including verification of the tested party, the selection of comparable companies, the financial information used, the comparability adjustments applied, and reasonable determination of the interquartile range;

· The main transactions audited have been financial services (i.e., centralised treasury, debt costs, and capital transfers), deduction of royalty expenses, and intragroup service charges; and

· Corporate restructuring that involves the purchase and sale of tangible or intangible assets.

Current local regulations, and mainly the Guidance on TP and Tax matters issued by the tax authority, are based on the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (the OECD TP Guidelines). However, the tax authority is not required to report additional formal obligations, such as the country-by-country report or the master file.

On the other hand, in consideration of the presidential period that began in June 2024, emphasis has been placed on improving the country's economic affairs, considered one of the main priorities of the government. So, it is possible to infer changes in local and international taxation, as well as digitalisation and modernisation of the tax authority, that contribute to this objective, and tax reforms are expected in the short or medium term.


When discussing TP documentation, it is crucial to emphasise that it involves more than just filing an annual informative return or maintaining a TP documentation study. Transactions with related parties must be adequately supported in compliance with all the provisions that regulate related-party transactions established in the Panama Tax Code, and supplemented by the OECD TP Guidelines when they are consistent with the provisions of Panama’s Tax Code.

The Panama tax administration (DGI) has recently initiated several auditing processes focused on different pillars, mainly the following:

  • Selection of the period for comparison – according to Article 2 of Executive Decree 390 of October 24 2015, information for multiple years should only be used in TP analysis when it adds value, and not as a systematic requirement. The DGI has shown a preference for a one-on-one-year analysis rather than a multi-year average unless there is a solid basis for its use.

  • Selection of comparables – ensure that the services or products are similar to those of the analysed party, the industry is the same, and the functions, assets, and risks are as similar as possible.

  • Financial information of comparables – the DGI considers it crucial to increase the reliability of the analysis by using comparables that do not include net margin losses unless adequately justified.

  • Main lines of business – the DGI often disregards comparables with significant revenues from activities unrelated to their core business. Audit processes of the DGI also focus on stages prior to determining the arm's-length principle. Key factors include:

    •  Execution of the operation and proper documentation – the execution of services must be documented to be considered intra-group services from an arm's-length principle perspective. This includes having contracts, invoices, proof of payments, schedules, or any documentation demonstrating the service's existence.

    • Use and necessity of the service – to justify the service's necessity and usage, it must be shown that under comparable circumstances, the taxpayer would require such services from an independent third party and be willing to pay for them. Documentation should demonstrate the following:

      • Duplicative services – the taxpayer must show that no internal personnel perform the same functions as those contracted; and

      • Shareholder activities – it must be shown that the functions performed do not correspond to shareholder activities, such as services provided to other group members or general shareholder meetings.

In terms of regulatory compliance and risks mitigation, it is important to note that the guidelines must be adhered to by legal persons in the Colón Free Zone, or operating in petroleum free zones under Cabinet Decree 36 of 2003, the Panama–Pacific Special Economic Area, multinational company headquarters, the City of Knowledge, or any other free zones or special economic areas established or to be created in the future, with related parties established in the Republic of Panama or tax residents of other jurisdictions, or established in any other zone or special economic area subject to a special regime mentioned above.

Natural or legal persons operating in one of these zones or under one of the special regimes mentioned, even if exempt from income tax or having a reduced tax rate under special provisions of their laws, are subject to the TP regime explained in this article, without the provisions of Article 762-D of the Tax Code applying.

In summary, the pillars described must always be taken into account whenever taxpayers engage in transactions with related parties, regardless of whether they benefit from tax incentives, to mitigate the risk of adjustments or penalties for non-compliance determined by the DGI.

Final remarks on TP regulations in Guatemala, El Salvador, and Panama

The enhanced focus on TP regulations in Guatemala, El Salvador, and Panama underscores the importance of adhering to international standards and local tax laws. The recent intensification of audit processes in these countries highlights the growing emphasis on ensuring transparency and compliance. By implementing rigorous audit procedures and utilising advanced analytical tools, tax authorities aim to detect and address non-compliance more effectively.

As businesses navigate these evolving landscapes, it is crucial to maintain comprehensive documentation and demonstrate the economic substance of related-party transactions to mitigate risks and foster a robust tax environment. The heightened scrutiny in these jurisdictions reflects the global trend towards more stringent enforcement of TP regulations, emphasising the need for businesses to be proactive in their tax compliance efforts.

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