Transfer Pricing in Uruguay
Transfer pricing in Uruguay has been regulated since 2007, in Chapter VII, Title IV, of the 1996 Ordinance and amendments.
However, it is in 2017 that new formal transfer pricing obligations are introduced, which were incorporated by Law 19484, such as the obligation to submit Master File and Country by Country Report (Cbc Report), for certain taxpayers.
With this last modification, Uruguay is aligned with Action 13 of the BEPS Plan (Base and Erosion and Profit Shifting) of the Organization for Economic Cooperation and Development (OECD) on transfer pricing documentation in order to seek to combat tax evasion and avoidance.
Principle of Full Competition
The principle of full competition or “Arm’s Length” that governs transfer pricing is based on the fact that prices agreed in transactions between related parties must be in line with market values.
Such principle is also regulated in the Uruguayan legislation on transfer pricing, in Article 38 of Chapter VII, Title IV of the 1996 Ordinance and amendments.
The referred article states that those transactions carried out by taxpayers of the tax with related entities will be considered as carried out between independent parties, when all their services are in accordance with normal market practices.
Scope of Application of Transfer Pricing in Uruguay
Article 39, Chapter VII, Title IV, of the 1996 Ordinance, pursuant to Article 1, of Decree No. 56/009, as amended, establishes the conditions under which the transfer pricing regime in Uruguay is binding.
Therefore, the following will be within the scope of said regulations, provided that both are subject to the control of the same individuals or legal entities or that they have decision-making power due to their capital participation, because they exercise functional or any other kind of influence:
- Those taxpayers who carry out transactions with related entities, resident abroad.
- Taxpayers who obtain income from personal services, without a relationship of dependence reached by the Income Tax from Economic Activities with respect to related entities abroad.
- Taxpayers who carry out transactions with entities incorporated, domiciled, resident or located in countries with low or zero taxation or who benefit from a low or zero taxation regime. Likewise, this section includes operations with entities that operate in customs warehouses.
Definition of Related Parties in Uruguay
According to Resolution No. 2,084/009, issued by the General Directorate of Taxation (DGI), which regulates the provisions of Article 39 mentioned in the previous paragraph, it shall be understood that related entities are understood to be those that are in any of the cases indicated below:
- When an entity holds equal or more than 10% of the capital of another.
- When an entity exercises functional influence over another entity.
- When two or more entities have indistinctly
- Common entity that holds in both equal or more than 10% of its capital.
- An entity owns in one or more entities the same or more of the percentage mentioned above and has functional influences in one or more of the other entities.
- A common entity that simultaneously holds functional influences over these entities.
- An entity with sufficient votes to form the social will.
- An entity in common that has sufficient votes to form the social will.
- One entity is an agent, distributor, exclusive supplier of another.
- If there is a common entity that sets business policies in two or more companies.
- An entity assumes the losses or expenses of others.
Also, the entity resident or domiciled in countries or jurisdictions with low or no taxation or preferential regimes is considered as a related party, according to article 40 of Title IV.
Transfer Pricing Methods in Uruguay
In order to establish whether transactions between related entities are in line with market prices, transfer pricing legislation in Uruguay has established 5 methodologies.
According to article 41 of Title IV, of the 1996 Ordinance, incorporated by Law 18,083, the following adjustment methods will be considered:
- Non-controlled Comparable Price Method.
- Resale Price Method.
- Cost plus benefit method.
- Profit Split Method.
- Net Transaction Margin Method.
The taxpayer will choose the most appropriate method for the type of transaction performed.
Transfer Pricing Declaration and Documentation in Uruguay
Article 14 and 15 of Decree No. 556/009, states that taxpayers who are within the scope of the transfer pricing rules in Uruguay must submit a sworn statement and documentation of the transactions carried out with related parties; respectively.
Likewise, Law N°19484, enacted in 2017, establishes the obligation to submit Master File and Country by Country Report (Cbc Report), according to the guidelines set forth by Action 13 of the BEPS Plan.
Transfer Pricing Affidavit
According to Article 14 of the Decree and Article 10 of Resolution No. 2,084/2009, taxpayers who carry out transactions with related parties must submit an informative sworn statement, in which these are recorded.
Those who comply with any of the following conditions will be obliged to do so:
- They are in the Large Taxpayers Division.
- Carry out transactions under the transfer pricing regime for an amount exceeding UI 50,000,000 (fifty million indexed units) in the corresponding fiscal period.
- It is excepted from this paragraph to the transactions carried out by Free Zone users, as indicated in Law No. 15,921, provided that they are not taxed with the Income Tax from Economic Activities.
- They have been notified by the DGI.
Such declaration shall be made by means of Form N°3001, and shall be filed with the Tax Administration until the ninth month, counted from the fiscal closing date, which shall depend on the last digit of the taxpayer’s RUC.
Law 19484, enacted in 2017, modifies the transfer pricing regime in Uruguay, establishing new special affidavits.
Thus, Article 46 of Title IV, of the 1996 Ordered Text, as amended by the above-mentioned law, states that taxable persons who are part of a Multinational Group must file the Master Report.
A group of two or more entities resident in different jurisdictions that are linked, directly or indirectly, by the control of the same individuals or legal entities, by their participation in capital or by functional influence that allows them to have decision-making power, are considered as such.
The report shall contain at least the organizational structure of the Multinational Group, a description of the group’s business, an indication of the group’s intangible assets, financial activities between group entities, and the group’s financial and tax position.
Country by Country Report
The Country by Country Report will be subject to the taxpayer that is part of a Multinational Group of great economic importance, provided that the linkage assumption established as in the preceding paragraph is configured.
A Multinational Group of great economic dimension will be considered, according to Article 5 of Decree N°353/018, when its total consolidated income is equal or higher than 750,000,000 Euros or its equivalent in national currency.
It will be exempted from submitting this Report when it must be submitted by an entity of the Group resident in a country with which Uruguay has an agreement to exchange tax information.
As to the content of the report, it will indicate the identification of each one of the entities of the group, as well as the activities they carry out, consolidated gross income, distinguishing those obtained from related parties and independent parties, profit before tax, tax paid; among others.
Regarding the presentation period, as well as the Master Report, it must be submitted within 12 months following the closing of the fiscal year, in accordance with Article 9 of Decree No. 353/018.
Technical Study of Transfer Pricing
Article 10 of Resolution No. 2,084/2009 states that taxpayers who make transactions with related parties must submit a Transfer Pricing Study along with the informative affidavit.
For this purpose, the obligated subjects will be the same as those established for filing returns.
The minimum content of the study is: identification of the taxpayer, activity of the taxpayer, risks, assets used, identification of related parties, detail of operations and methodology of analysis.
Sanctions for Noncompliance with Transfer Pricing in Uruguay
The transfer pricing regime in Uruguay has specific sanctions related to the noncompliance with the obligations in this matter.
Thus, article 46 bis of Title IV, of the 1996 Ordinance, states that failure to comply with formal transfer pricing obligations will be sanctioned in a graduated manner, according to article 100 of the Uruguayan Tax Code, under the fine regime of the fourth paragraph of article 469° of Law No. 17.930, in the wording of article 68 of Law No. 18.083.
This last article states that the fine will be up to one thousand times the maximum value of the fine for contravention, established in Article 95 of the Tax Code. This article, as amended by Decree No. 355/19, establishes a penalty for contravention that may range from $480 to $8,970.
Therefore, the fine related to transfer pricing may amount from $480,000 to $8,970,000.
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