Worldwide transfer pricing reference guide 2014

Colombia
Taxing authority and tax law
Tax authority: Dirección de Impuestos y Aduanas Nacionales (DIAN)
Tax law:
• Law 788 (enacted December 2002) and Law 863 (enacted December 2003) establish transfer pricing rules; Articles 260-1 to 260-11 of
the Colombian tax code. On 26 December 2012, the Colombian Government issued a tax bill which included significant modifications to
the transfer pricing regime. Under these modifications, a permanent establishment (PE) is considered as related party and must comply
with the formal transfer pricing obligations in Colombia. Additionally, transactions carried out between taxpayers in Colombia and their
related parties located in free trade zones are also subject to transfer pricing rules and regulations.
• The definition of related parties is found in Article 260-1 of the Colombian tax code. The definition of tax haven is found in Article 260-7
of the Colombian tax code.
Relevant regulations and rulings
Regulatory Decree 4349, published in December 2004, establishes transfer pricing guidelines, including the contents of the transfer
pricing documentation and the informative return, use of financial information and the APA programs.
Decree 1602, published in July 2012, included a few changes with regards to procedures for applying for an APA.
It is important to highlight that the tax bill mentions that it is not mandatory to use the interquartile range as the accepted measure
to determine if the analyzed transaction complies with the arm’s length principle. Accordingly, it is possible to use other statistical
measures, including the total range.
Additionally, the tax bill established that the financial information (whether segmented or not) that is used to carry out the transfer
pricing analysis of an intercompany transaction must be certified by an independent auditor.
Tax authorities have released notice mentioning that a new regulatory decree will be issued before the end of 2013.
OECD guidelines treatment
Although Colombia is not a member of the OECD, the OECD Guidelines are generally followed in local regulations. According to Sentence
C–690 of the Colombian Constitutional Court, issued on 12 August 2003, the OECD Guidelines and Commentaries are an auxiliary source
of guidance and interpretation, but they are not mandatory for the Colombian tax authority. However, the OECD Guidelines have been
mentioned and have been used as a reference in official audits.
Priorities/pricing methods
Colombian tax law has established five transfer pricing analysis methods: CUP, Resale Price, Cost Plus, TNMM and Profit Split (which can
be applied either in the form of a contribution analysis or a residual analysis).
Method selection should be based on the characteristics of the transaction under analysis. The selected method should be the one that
best reflects the economic reality of the transaction, and the one that provides the best information and requires the least adjustments
(best method).
Some of the important changes in the transfer pricing regime are:
• When internal comparables are available, they must be used as priority when carrying out the transfer pricing analysis.
• When using the CUP method to analyze the purchase of used assets between related parties, the original purchase invoice issued by the
third party to the related party abroad must be used to obtain the initial purchase value, thus taking into account the asset’s depreciation
since acquisition, in compliance with Colombian GAAP. If no original invoice is available, a third party’s valuation must be performed
to prove the arm’s length value of the acquired asset. The equity value cannot be used to analyze the purchase/sale of stocks that are
not publicly traded on the stock market or those transactions that involve the transfer of other assets that have difficulties when being
compared. Instead, financial valuation methods must be used, particularly those that calculate the market value through the discounted
cash flow method.
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