APAs: Are these agreements requested in Colombia and the USA?

Unlike the US, Advance Pricing Agreements (APAs) are perceived with distrust in Latin America due to the lack of information regarding these programs, the time required, the data to be submitted, and the low probability of being accepted.   

The Internal Revenue Service (IRS) has issued a last annual report on these Agreements exposing the characteristics of its APA program, with over 20 years of existence. In this regard, the IRS reports how many APAs are requested, accepted, or rejected and provides information on acceptance trends according to the transaction. 

1. What are APAs?

They are agreements between the tax authority and a taxpayer, in which it is agreed in advance those economic conditions implemented to determine the transfer prices of transactions performed by taxpayers with their related parties. One of the benefits of these instruments is the reduction of the risk of double taxation when the APAs are bilateral or multilateral.

2. The processing of APAs in the USA

In the United States, about 2936 APAs have been reported since 1990. In 2021, 145 APAs were requested, of which 121 were bilateral. Meanwhile, 124 APAs were executed that year, and the main countries with which these agreements have been signed are Japan, Germany, and Canada.

Most of the executed APAs correspond to the wholesale or retail trade and manufacturing industries, as well as services, management, finance, insurance, real estate, and others.

3. The processing of APAs in Colombia

In Colombia, APAs are regulated in Article 260-10 of the Tax Statute and Art. 4 of D. 2120 of 2017. As noticed, there is not much information on how the DIAN (Dirección de Impuestos y Aduanas Nacionales – National Tax and Customs Directorate) deals with APA requests. The only piece of information indicates there are 4 APA requests currently under negotiation.   

The CIAT (Centro Interamericano de Administraciones Tributarias – Inter-American Center of Tax Administrations) has reported Colombia has only 1 APA signed from 2012 to 2014, evidencing almost null use of such an instrument in the country by taxpayers. 

Source: Cámara de Comercio Colombo Americana-Ancham Colombia 04/07/22

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