The transfer pricing regulations in Colombia have been introduced more than 16 years ago, in this article you will be able to take a look at this regime, making known the main aspects, such as its scope of application, methodology, formal obligations such as the informative affidavit and the transfer pricing supporting documentation, as well as the penalties for non-compliance.
Transfer pricing in Colombia has as a regulatory background the tax reform implemented by Law 788 of 2002. However, it was not until the enactment of Decree No. 4349 in 2004, which introduced a whole legal framework on the subject.
Subsequently, in 2013 Decree No. 3030 incorporates substantial changes to the transfer pricing regime, one of the main ones being those related to formal obligations, such as the filing of the Transfer Pricing Information Affidavit and the respective supporting documentation.
Although the legislation mentioned above was already in place, Colombia, to adapt to the actions of the BEPS Plan (Base Erosion and Profit Shifting) of the Organization for Economic Cooperation and Development (OECD), establishes a new reform to its transfer pricing rules.
Thus, in December 2016, Law No. 1819 is published, which modifies its Tax Statute based on a focus on the fight against tax evasion or avoidance.
Transfer prices can be defined as those prices or considerations agreed for transactions between related parties.
Also known as the “Arm’s Length” principle, it is based on the fact that prices agreed between related parties must be under the market value, that is, they must be consistent with what independent parties would have agreed.
This principle is regulated in article 260-2 of the Tax Statute, which defines it as the principle that a transaction between related parties complies with the conditions that would have been used in comparable transactions with or between independent parties.
The transfer pricing regime in Colombia regulates the transactions entered into with related parties abroad, according to Article 260-2 of the Tax Statute, or those related parties domiciled in free zones.
Likewise, according to the second paragraph of article 260-7 of the referred Statute, those taxpayers that carry out transactions with entities resident or domiciled in non-cooperative jurisdictions, preferential regimes or countries with low or no taxation, also called tax havens, shall also be subject to this regime.
An entity is subordinated when its decision-making power depends on another person or entity, which will be called controlling or parent entity, either directly as in the case of an affiliate or indirectly through other subordinate entities, in the case of a subsidiary.
Likewise, an entity will be considered subordinate if it is in the following cases:
It should be noted that the linkage is said of all the companies, vehicles or non-corporate entities that make up the group, even if their parent company is domiciled abroad.
According to Article 260-7 of the Tax Statute, the non-cooperating and low or null tax jurisdictions will be determined by the national government; however, they will meet certain criteria such as:
Also, preferential tax regimes will be considered when at least two of the criteria mentioned above are met.
There are six methods in the Colombian legislation of transfer pricing, which according to article 260-3 of its Tax Statute, are the following:
In addition, the taxpayer will choose the most appropriate method for each transaction.
According to Article 260-4 of the Tax Statute, the following criteria must be taken into consideration to determine whether a transaction is comparable:
It should be noted that the last paragraph of the aforementioned standard indicates that in case there are internal comparables, these should be taken into account as a priority.
According to article 260-9 of the Tax Statute, those taxpayers who carry out operations with related parties and whose equity or gross income has been equal to or higher than the equivalent of 100,000 or 61,000 UVT, respectively, are obliged to file an Informative Affidavit.
As to the filing, it must be done virtually through form 120 established by the National Tax and Customs Directorate (DIAN).
Regarding the deadline, the terms indicated by DIAN must be observed, taking into consideration the last digit of the NIT.
As mentioned above, Colombia, with its 2016 reform, has brought its transfer pricing regulations into line with OECD parameters.
Specifically, with regard to transfer pricing documentation, it has been aligned with the provisions of Action 13 of the BEPS, for which it has incorporated three levels of documentation.
Thus, article 260-5 of the Tax Statute indicates that taxpayers who carry out transactions with related parties abroad or with subjects domiciled in tax havens must submit a Local File, Master File and/or Country by Country Report, if applicable.
Income taxpayers whose gross equity on the last day of the year or taxable period are equal to or greater than the equivalent of one hundred thousand (100,000) U.V.T.’s or whose gross income of the respective year is equal to or greater than the equivalent of sixty-one thousand (61,000) U.V.T.’s, who enter into transactions with related parties.
Income tax and supplementary taxpayers who are located in any of the following cases are obliged to submit this report:
Likewise, it is worth mentioning that in case of operations carried out with subjects domiciled in non-cooperative jurisdictions, of low or null taxing or preferential regimes, both the evidentiary documentation and the indicated informative declaration must be presented, regardless of whether their gross equity on the last day of the year or taxable period or their gross income of the respective year is lower than the indicated ceilings.
According to Article 260-11 of the Tax Statute, specific sanctions are established for failure to comply with transfer pricing documentation and declarations.
As for the documentation, the penalty will depend on the infraction, as indicated below:
Depending on whether it is presented within 5 working days after the expiration or after, in the first case the penalty will be (0.05%) of the total value of the operations subject to documentation.
In the second case, a penalty of (0.2%) of the total value of the transactions subject to documentation will be applied for each month or a fraction of a calendar month of delay in the presentation of the documentation.
The penalty for this infraction corresponds to (1%) of the value of the operation for which the inconsistent information was provided.
In case it is not possible to establish the basis, the penalty will correspond to (0.5%) of the total value of the operations consigned in the informative declaration.
The penalty for this infraction will depend on whether the documentation not submitted is related to a related-party transaction or a tax haven. In the first case, the penalty will be 0.4% of the total value of the undocumented transactions, and in the second case, 0.6%.
If it is not possible to establish the basis, the penalty will correspond to (0.2%) of the total value of the operations stated in the information return.
When transactions with related parties are partially or completely omitted, the penalty will be 2% of the sum of which the information was omitted.
In case the omission does not correspond to the amount, but to the other information, the penalty will be 2% of the value of the transaction for which the information was not provided.
When information is omitted on transactions carried out with resident persons in non-cooperative, low-tax or non-existent jurisdictions or preferential regimes, the penalty shall amount to 4% of the sum in respect of which full or partial information was omitted.
For this infraction, there will be a penalty of one percent (1%) of the total value of the corrected operations, without such penalty exceeding the equivalent of five thousand (5,000) UVT.
In the case of the transfer pricing information statement, the assumptions of the infractions and penalties are the same as those indicated above for the supporting documentation, varying only the percentages indicated above.
Likewise, in both cases, the taxpayer may count on a reduction of fines up to 50% in case they are corrected before the notification of the statement of objections or the special requirement of the DIAN.
Also: Find out about the Transfer Pricing Expiration Schedule in Colombia