How FDI Affects Transfer Pricing Rules

In order for transfer pricing rules not to affect foreign investment, double taxation should be prevented.

Tuesday, September 10, 2013

According to Jose Antonio Saborio in his article in Elfinancierocr.com, it is not that transfer pricing rules (NPT) scare off foreign investment, "... rather they provide greater security to multinationals interested in investing, especially if the country has an extensive network of agreements to prevent or minimize double taxation (DII), which will allow two or more countries to discuss their differences on NPT, when the application of the latter leads to DII ".

Saborio says Costa Rica's accession to the NPT of the Organization for Economic Cooperation and Development (OECD) is not necessarily good for the country. "... The standard may be very fair, clear and reasonable on paper, but in the hands of arbitrary administration, its application can lead to disastrous results."

And the picture could be further complicated if you add in the fact that the country decided not to sign any agreement to prevent DII. Saborio says it's possible for tax authorities to apply the NPT aggressively for revenue purposes only. Should this happen multinationals would be greatly affected and would explore the possibility of moving to another country which is far more profitable and where NPT is better applied.



More on this topic

Agreement in the G20 Against Tax Avoidance

October 2015

The G20 finance ministers gave full support to the project that would prevent corporate profits from "disappearing" or being artificially transferred to jurisdictions with low or no taxation.

From the press release issued by the G-20:

During a meeting chaired by Turkish Deputy Prime Minister Cevdet Yilmaz, the G20 finance ministers expressed strong support for the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project, which provides governments with solutions for closing the gaps in existing international rules that allow corporate profits to « disappear » or be artificially shifted to low/no tax environments, where little or no economic activity takes place.

Panama to Negotiate New Double Taxation Treaties

January 2012

Before April 2012 the country will negotiate double taxation agreements with the UAE and Hungary.

The announcement was made by the Minister of Economy and Finance, Frank de Lima, during the opening of the new ordinary session of the Legislature.

"The head of the Ministry of Economy and Finance stressed the importance of the ratification by the French legislature of the double taxation agreement with Panama signed last December and its departure from the "gray list " collated by the Organization for Economic Cooperation and Development (OECD). He said that the move by France means that later this month, when France makes its list of countries with uncooperative tax policies, Panama should be left out of this category", reported Prensa.com.

Panama: Changes to Corporate Laws

October 2010

The Ministry of Economy and Finance (MEF) promotes changes to existing corporate laws.

The new rules require resident agents to keep records of beneficiaries of bearer share companies and it also imposes sanctions against not complying.

Prensa.com publishes, "it's something that Panama has to attend to in order to comply with double taxation treaties (DTT).

Panama Exposes Financial Services Policies

August 2009

OECD ambassadors were communicated the country's willingness to implement transparency and information exchange standards.

Panama's Government explained its interest in establishing policies and agreements necessary to prevent the country's inclusion in tax-haven blacklists.

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PRONicaragua

PRONicaragua, is the Nicaraguan Investment Promotion Agency, established in 2002. We are a non-profit, public-private institution whose mission is to generate economic growth and job creation in Nicaragua by attracting high-quality foreign direct investment. The Agency provides complimentary support services to qualified investors seeking investment opportunities in our country.
Operates in Nicaragua
Phone: (505) 2270 6400

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