Tax Bulletin Important changes in Trasfer Prices

Dear customers and friends, through this newsletter we wish to share with you certain important policy changes on the Colombian transfer-pricing regime. Specifically, the Congress of the Republic, through Law 1819 of 2016, imposed certain additional obligations on the taxpayers of the income tax obliged to comply with the transfer pricing regime, taking into account OECD recommendations. The normative changes that the law introduced are the following:

Law 1819 of 2016 created the obligation to prepare and present a master report, which contains relevant global information of the multinational group. This report is part of the documentation proving transfer prices, which must be presented annually by taxpayers subject to said regime. So far the National Government has not issued the regulatory decree that describes the content of said report. Without exception, the OECD has proposed the following:

 

Country by country reportThis report should only be included in the supporting documentation as of the taxable year 2018, with respect to the 2017 operations.

Law 1819 of 2016 created the obligation to prepare and present, for the taxable year 2016 and following, the country-by-country report. This report includes information on global allocation of income and taxes paid by the multinational group and indicators related to its economic activity at the global level. The following persons must submit this report:

  1. A) Controlling entities of Multinational Groups that fulfill the following requirements:
  2. Being a resident in Colombia,

Ii. Having linked entities abroad (including EP or branch),

Iii. Not being a subsidiary of a foreign company,

Iv. Be required to prepare, present and disclose consolidated EEFF,

  1. To have obtained, in the immediately preceding year, consolidated accounting revenues in excess of 81 million UVT (2.58 Billion approx.)
  2. B) One or more Resident Entities or EPs in Colombia, belonging to the same multinational group with headquarters abroad, and which:
  3. Jointly have a share in the consolidated group income equal to or greater than 20%.

Ii. That the parent has not submitted the report in their country of residence.

Iii. That the group obtained in the previous year consolidated accounting revenues in excess of 81 million UVT (2.58 Billion approx.).

  1. C) Entities resident in Colombia or foreigners with PE in the country that have been designated by the foreign controlling entity as responsible for producing the country-by-country report.

So far, the National Government has not issued the regulatory decree that indicates the specific content of said report.

The transfer pricing penalties regime was substantially modified. In general, sanctions were hardened and penalties with fixed values of UVT were eliminated. They now cater to the amount of operations and no longer distinguish between taxpayers with high or low operations.

It is worth noting that the sanction was created for not presenting supporting documentation and the sanction for recidivism was eliminated.

On the other hand, the National Government intends by means of a decree to modify the nomenclature to easily identify the different sanctions, since in the reform said numbering was different from what had been established in previous rules.

The concept of tax havens is extended to “non-cooperating jurisdictions, low or zero taxation and preferential tax regimes”. In addition, it maintains the obligation to present supporting documentation (master and local report) and the informational declaration in operations with these entities, regardless of gross assets or gross income.

The limitations of Articles 35 (presumed interest), 90 (minimum value of assets for sale or transfer) 124-1 (non-deductibility of interest and income paid to parent company), 124-2 (payments to “tax havens” (Prohibition of amortization of intangible assets acquired separately or through a business combination), 151 and 152 (non-deductibility of losses on sale of related assets or partners), 312 numerals 2 and 3 (non-deductibility of occasional losses by sale of fixed assets to affiliates or partners), do not apply to the taxpayer subject to the price regime, demonstrating that the operation complies with the principle of full competition.

In case you have concerns about this and other issues, do not hesitate to contact us.

Juan Pablo Godoy

Jgodoy@godoyhoyos.com

Catalina Hoyos choyos@godoyhoyos.com

Laura Durán

Lduran@godoyhoyos.com