Colombia

Transfer Pricing Regulations in Colombia

Transfer pricing regulations in Colombia are set forth in the Tax Code and Decree 3030 of 2013. These regulations specify the supporting documentation that Colombian taxpayers must submit to the National Tax and Customs Directorate (DIAN) whether transactions conducted with foreign affiliates, affiliates located in free trade zones, or with individuals, corporations, entities, or companies located, resident, or domiciled in tax havens were agreed upon in accordance with the arm’s-length principle.

Since 2012, significant changes have been made to the tax code regarding measures aimed at preventing tax evasion and fraud. One of the most important is the recent tax reform provided for in Law 1819 of 2016, which stipulates that taxpayers subject to income tax and supplementary taxes must file the Local File, the Master File, and the Country-by-Country Report (CbC Report).

The Transfer Pricing regime is set forth in Articles 260-1 through 260-11 of the Colombian Tax Code and is regulated by Regulatory Decree 2120 of 2017.

Relationship Rules in Colombia

For the purposes of transfer pricing regulations, two parties (individuals, legal entities, and other organizations with or without legal personality) are considered related parties—including a party resident in Colombia and a party resident abroad—when the following circumstances apply:

1. Subordinate Entities: An entity is considered subordinate or controlled when its decision-making authority is subject to the will of another person or entity—which is its parent company or controlling entity—either directly, in which case it is called a “filial,” or with the assistance of or through the parent’s subsidiaries, in which case it is called a “subsidiary.” A company is considered a subsidiary when one or more of the following conditions apply:
2. When more than 50% of its capital is owned by the parent company, either directly or through or with the assistance of its subsidiaries, or the subsidiaries of those subsidiaries. For this purpose, shares with preferential dividends and without voting rights shall not be counted;
3.  When the parent company and its subsidiaries, jointly or separately, have the right to cast the votes constituting the minimum decision-making majority at a shareholders’ meeting or general assembly, or have the number of votes necessary to elect a majority of the members of the board of directors, if any;
4. When the parent company, directly or through or with the involvement of its subsidiaries, by virtue of an act or transaction with the controlled company or its shareholders, exercises dominant influence over the decisions of the company’s governing bodies;
5. Likewise, subordination shall exist when control, in accordance with the provisions of this article, is exercised by one or more natural or legal persons, entities, or non-corporate structures, either directly or through or with the assistance of entities in which they hold more than fifty (50%) of the capital, or constitute the minimum majority required for decision-making, or exercise dominant influence over the management or decision-making of the entity;
6. Subordination shall also exist when the same natural person or the same natural or legal persons, or the same non-corporate vehicle or the same non-corporate vehicles, jointly or separately, are entitled to receive fifty percent of the profits of the subordinate company.

• Branches, with respect to their head offices.
• Agencies, with respect to the companies to which they belong.
• Permanent establishments, with respect to the company whose business they conduct in whole or in part.
• Other cases of economic affiliation:
• When the transaction takes place between two subsidiaries of the same parent company;
• When the transaction takes place between two subsidiaries that are directly or indirectly owned by the same individual or legal entity, or by non-corporate entities or structures;
• When the transaction takes place between two companies in which the same individual or legal entity participates directly or indirectly in the management, control, or capital of both.
• A natural or legal person may participate directly or indirectly in the management, control, or capital of another when (i) they hold, directly or indirectly, more than 50% of that company’s capital, or (ii) they have the ability to control the company’s business decisions;
• When the transaction takes place between two companies whose capital is owned, directly or indirectly, by more than fifty percent (50%) by persons related to each other by marriage or by kinship up to the second degree of consanguinity or affinity, or by civil union;
• When the transaction is carried out between related parties through unrelated third parties;
• When more than 50% of gross revenue is derived, individually or collectively, from its partners or shareholders, co-owners, associates, subscribers, or similar parties;
• When there are consortia, temporary joint ventures, joint accounts, other forms of association that do not give rise to legal entities, and other business collaboration agreements. The affiliation applies to all corporations and non-corporate vehicles or entities that make up the group, even if its parent company is domiciled abroad.

Formal Obligations: Informative Affidavits

Informative Return in Colombia

Pursuant to Article 260-9 of the Tax Code, income tax and supplementary tax payers who are subject to the transfer pricing regulations and whose gross assets on the last day of the taxable year or period are equal to or greater than the equivalent of one hundred thousand (100,000) UVT or whose gross income for the respective year is equal to or greater than the equivalent of sixty-one thousand (61,000) UVT, and who engage in transactions with related parties in accordance with the provisions of Articles 260-1 and 260-2 of the Tax Code.

Transfer pricing information returns must be filed electronically through the electronic filing services, using Form 120 established for this purpose by the DIAN; this form must be completed, signed, and submitted by the filer.

Local Report

Taxpayers are required to file the Local Report if their gross assets on the last day of the respective taxable year or period were equal to or greater than the equivalent of 100,000.00 UVT; or whose gross income in the same year was equal to or greater than 61,000 UVT.

Likewise, there is no requirement to prepare and submit supporting documentation for transactions whose cumulative annual amount does not exceed the equivalent of 45,000 UVT.

In addition to meeting the above requirements: Companies with transactions involving non-cooperative jurisdictions exceeding 10,000 UVT are also required to submit supporting documentation

Master Report

Taxpayers subject to income tax and supplementary taxes are required to file the Master Report when they are part of a multinational group and meet the thresholds specified for filing the Local Transfer Pricing Report.

Country-by-Country Report

The Country-by-Country (CbC) Report applies to multinational groups resident in Colombia with revenues exceeding 81,000,000 UVT COP or 2.3 billion. The CbC must be filed in Colombia when locally incorporated entities account for a combined share of 20% or more of the group’s consolidated revenue.

Income tax and supplementary tax payers must file this report if they fall under any of the following circumstances:

• Parent or Controlling Entities of Multinational Groups that are resident in Colombia and have affiliates, subsidiaries, branches, or permanent establishments located abroad, as applicable, are not subsidiaries of another company resident abroad, are required to prepare, file, and disclose consolidated financial statements, and have earned consolidated revenue for accounting purposes equal to or greater than eighty-one million (81,000,000) UVT during the immediately preceding taxable period.

• Entities resident in the national territory or resident abroad with a permanent establishment in the country, which have been designated by the parent or controlling entity of the multinational group resident abroad as a substitute entity to file the country-by-country report on behalf of the multinational group.

• One or more entities or permanent establishments resident in or located within the national territory that belong to the same multinational group, whose parent or controlling entity is resident or located abroad, and which collectively account for 20% or more of the multinational group’s consolidated revenue, provided that the parent entity has not filed the country-by-country report in its country of residence—it being understood in such cases that: there is no legal requirement obligating the parent entity to file said report in its jurisdiction of tax residence; the jurisdiction where the parent entity resides has a valid international agreement to which Colombia is a party; there is a systematic non-compliance in the parent entity’s jurisdiction of tax residence that has been notified by the Colombian Tax Administration to the member entity of the multinational group that is a resident for tax purposes in Colombia.

Deadline for filing annual tax returns.

The Transfer Pricing Information Return must be filed electronically through the DIAN’s online services, based on the last digit of the filer’s NIT, excluding the check digit, in accordance with the deadlines established by the DIAN for each tax year.

Penalties for Noncompliance

Penalties for transfer pricing documentation:

• Late filing: within five days of the deadline, a fine of 0.05% of the total amount of the transactions subject to review will be imposed. After five days, the fine will be 0.2% of the same base amount, capped at 20,000 UVT (COP663 million for the 2018 fiscal year).
• Inconsistencies in information: The fine will be 1% of the value of reported transactions with inconsistencies that were carried out with related parties, capped at 5,000 UVT (COP 165 million for fiscal year 2018).
• Failure to file: The fine will be 4% of the total amount of the transactions subject to review, capped at 25,000 UVT (COP 828 million for fiscal year 2018).
• Omitted information (transactions): The penalty will be 2% of the value of the omitted transactions conducted with related parties, capped at 5,000 UVT; additionally, costs and expenses related to omitted transactions may be disallowed.
• Omitted information (related parties located in tax havens): The fine will be 4% of the total value of transactions conducted with related parties, capped at 10,000 UVT (COP 331 million for fiscal year 2018); Additionally, costs and expenses related to omitted transactions may be disallowed.