COLOMBIA: Transfer Pricing Regime and Timing of the Informative Returns

Starting in July of 2019, all taxpayers who have made transactions with related parties^[1] must present an informative return and, in some cases, when determined by the law, the local master report and the country by country repost as well. The dates are provided in the decree.

In the cases where there are prior economic ties, according to the Tax code, all tax payers will be required to calculate income, costs and deduction based on the arm´s length, or international taxation, principle. This international taxation principle determines the parameters for liquidity, fulfilling income tax and when applicable, any operations conducted with unrelated third parties.

[1] Related Parties – A related party is a relationship in which one party has the ability to control the other or has significant influence over the other party in making financial decisions.

Under these conditions it is easily determined that there are economic ties, among others, when transactions occur within entities that the law defines as subordinate. That is to say, it is easily determined if funds are coming from its partners or its shareholders when a parent company controls more than 50% of shares, exercises dominant influence in management decisions, or more than 50% of the company´s gross revenue.

Most importantly, the Tax Administration has broad powers to determine if income, expenses, deductions, assets and liabilities arise from transaction with related parties comply with the aforementioned arm´s length principle. For this reason, it is important that taxpayers document evidence sufficiently.

Additionally, it is required to submit the transfer price return to any and all taxpayers whose gross assets are the end of the taxable year are equal to greater than one hundred thousand (100,000) tax value (UVT) – which is equivalent to approximately one million one hundred thousand dollars (1,000,000 USD) or whose revenue is greater than sixty-one thousand UVT or approximately seventy-hundred thousand dollars (700,000 USD).

Penalties for noncompliance, presenting outside the term, the informative transfer pricing return may amount to 15,000 UVT (approx.. 165,000 USD).

On the other hand, if the information presented contains errors or inconsistencies in the documentation provided, the sanctions rise to 2,280 UVT (approx. 25,000 USD). In cases where information is omitted either in its entirety or in part the sanction rises to 1.3% of the total amount contained in the omitted information. Finally, where it is not possible to establish the base of operations subject to the rules of transfer pricing, the sanction could reach up to 3,000 UVT (approx. 300,000 USD).

Sanctions and penalties for deference are best avoided and therefore it is important that a company regularly manages their compliance with up-to-date regulations. Any company can feel at ease when working with an expert team who handles regulatory observance so that can they continue to carry out their daily business functions. At Auxadi we provide assurance and confidence to any company by working with a team of global professionals that ensure faithful compliance everytime.

[1]Related Parties – A related party is a relationship in which one party has the ability to control the other or has significant influence over the other party in making financial decisions.