The Special Rules for Valuation between Related Parties were introduced in the Guatemalan tax legislation for the year 2012, in the Tax Update Law, through Decree 10-2012.

Subsequently, in May 2013, Government Agreement No. 213-2013 or “Regulations to the Tax Update Law” was published, which dictates transfer pricing provisions with respect to Articles 54 to 67 of the Law.

However, in December 2013, it was decided to suspend the application of such rules by Decree No. 19-2013, and their application will only be activated in 2015.

Principle of Full Competition: Concept

Also known as the “arm’s length” principle, it is based on the fact that the prices agreed in transactions between related parties are in accordance with what would have been agreed by independent third parties, i.e., they are at market value.

Guatemala’s transfer pricing legislation has also incorporated this principle in Article 54 , Section I, Chapter VII, of the Tax Update Law.

This article conceptualizes this principle by stating that it is understood as the price that would have been agreed upon by independent parties in conditions of free competition for comparable operations.

Scope of application of Transfer Pricing in Guatemala

According to Article 57 of the Law, the transfer pricing regime in Guatemala shall apply to transactions carried out between a resident in the country and an entity related to it abroad, provided that this operation has effects on the determination of the tax in the period in which it is carried out.

Definition of related parties in Guatemala

According to Article 56 of the Law, parties related to a resident of Guatemala are considered to be parties related to a resident of Guatemala, when any of the following cases are fulfilled:

1. One of them, directly or indirectly, directs, controls or possesses another, at least 25% of its capital.
2. When both related parties are directed or controlled by 5 or less persons in common or when they jointly own at least 25% of the capital of the other company.
3. When it is a question of legal persons belonging to the same business group. Likewise, when two companies are part of a business group, in relation to a third, all these entities are part of the group.
4. When there is a distributor or exclusive agent abroad.
5. When the distributor or exclusive agent is a resident in Guatemala, with respect to an entity abroad.
6. The person resident in Guatemala with respect to its permanent establishments abroad.
7. The permanent establishment in Guatemala, with respect to its parent company abroad.

It should be noted that the term person refers to both legal and natural persons and other personalities with or without legal personality.

Likewise, with respect to the proportion indicated in paragraphs a and b, the law establishes that the relationship is also formed when the indicated proportion corresponds to the spouse, or person united by kinship or consanguinity up to the fourth degree, and second degree of affinity.

Transfer Pricing Methods in Guatemala

Guatemala’s transfer pricing legislation establishes five methods to analyze whether prices agreed between related parties comply with the principle of free competition.

According to Article 59 of the Law, they are the following: Non-Controlled Comparable Price Method:

• Added Cost Method.
• Resale Price Method.
• Profit Sharing Method.
• Net Transaction Margin Method.

The taxpayer may choose the most appropriate method according to the characteristics of the operation, as indicated in Article 48 of the Regulations to the Tax Update Law.

Comparability Analysis in Guatemala

According to paragraph 3 of Article 58 of the Law, in accordance with Articles 42 to 45 of the Regulations, in order to analyze whether one or more operations with comparables should be taken into consideration, the following should be considered:

• The specific characteristics of the operation.
• The functions assumed, assets and risks used in the transaction.
• The contractual terms.
• The characteristics of the market affected.
• The commercial strategies.

Affidavit and Transfer Pricing Documentation

The Guatemalan transfer pricing law establishes two types of formal obligations that must be observed by those taxpayers that carry out operations with related parties. These are the presentation of an Annex with the detail and analysis of these operations, and a Transfer Pricing Study.

Transfer Pricing Statement (Annex)

In accordance with Article 64 of the Regulations to the Law, those taxpayers who indicate in their annual income tax return that they have carried out transactions with related parties must attach an Annex with the content indicated by the Tax Administration.

For this purpose, the SAT issues an Instruction in which it indicates the form to be filled out.

Transfer Pricing Study

Article 65 of the Law states that the taxpayer subject to the transfer pricing rules must have the information and analysis of the transactions with related parties.

In turn, Article 65 of the Law’s Regulations establishes that this information must be contained in a Transfer Pricing Study.

This study must be submitted at the request of the Tax Administration within 20 days from the date of receipt of the study.

Sanctions for Noncompliance with Transfer Pricing in Guatemala

Article 66 of the Regulations states that failure to comply with the formal obligations related to transfer pricing will be sanctioned, in accordance with the provisions of the Tax Code.

According to numeral 13 of Article 94 of the referred Code, the failure to present the established reports to the Tax Administration is sanctioned with a fine of 5,000.00 Quetzals, the first time and 10,000.00 Quetzals the second time.

In case of failure to comply more than twice, the fine will be 10,000.00 Quetzals plus 1% of the gross income obtained during the last month in which the income was declared.