Colombia - Transfer pricing rules are amended by new law 

For transfer pricing purposes, new measures set forth rules for:

• Determining when entities are related parties (in general, a more than 50% of production, profit or gross revenue standard)
• Applying the arm’s length principle for transactions between a foreign entity having a permanent establishment in Colombia and another foreign entity or with related parties located in the Zona Franca
• Determining which transfer pricing methods to apply (in general, pursuant to the OECD transfer pricing guidelines)
• Applying the comparable uncontrolled price (CUP) method
• Determining intra-group services or cost sharing arrangements
• Comparing two operations under the transfer pricing regime and determining when two operations are comparable
• Determining when financing transactions are at arm’s length (i.e., by considering the principal amount, term, risk, security, credit-worthiness of the borrower, interest rate)

Documentation

There are new transfer pricing documentation rules. Specifically, the new rules concern compliance with formal requirements when the transactions are with entities or persons located in “tax haven” jurisdictions and also certification of financial and accounting information by an auditor.




The transfer pricing documentation must document and include details of the functions performed, assets used, risks assumed, and all costs and expenses incurred.

APAs

Under the new advance pricing agreement (APA) provisions, an APA may be effective for the year in which the agreement is concluded, and also for the prior year, and for up to three tax periods following the signing of the agreement.




The APA can be terminated if the tax authorities determine that the taxpayer has failed to fulfill the conditions of the agreement.

Penalties

The new law amends the penalty provisions under the transfer pricing rules.




One modification decreases the penalty amount by taking into consideration items such as the harm caused by the violation, the period of time involved, and the value of the transaction that generated the sanctionable conduct.




In situations concerning financial transactions (e.g., loans involving interest), the basis for calculating the penalty is the principal amount of the loan.




Finally, with repeated violation, a penalty can be imposed in an amount of 20,000 UVT for each year or tax period for which the conduct relates.




Read a January 2013 report (Spanish) [PDF 52 KB] prepared by the KPMG member firm in Colombia: Colombia - Precios de Transferencia





For more information, contact a tax professional with KPMG’s Global Transfer Pricing Services group in Colombia:




Vicente J. Torres


+57 161 88 000