Relevant Considerations

Recently, the National Government issued Decree 2229 / 23, through which the calendar for the filing of all tax duties is disclosed. In comparison with the calendars of previous years, this one show significant changes, especially due to the unification of the due date of the Master File together with the Local File and the Transfer Pricing (TP) Return.

While in previous years the due date of the Master File was in December, for 2024 it changed to the month of September and will remain so for subsequent years since Decree 2229 / 23 refers to the due dates of tax duties in business days, instead of specific dates, as it was previously done.

It is important to highlight that, globally, the Master File is generally due on December 31, so the efforts of the parent company or corporate headquarters are focused on having this report available for this month. This represents a challenge to ensure its availability and timely filing in Colombia, since taxpayers must practically define between two options: (i) to file the Master File of the previous fiscal year, which would be information that do not correspond to the fiscal year under analysis, or (ii) to file the Master File of the correct fiscal year, but after the September due dates. Either of the two options entails considerable penalties, which depending on the fact of inconsistencies or untimeliness may reach approximately USD$ 265,000.

The modification of the due dates has significant implications in terms of TP project management, whether requesting the Master File from the parent company or preparing it internally to ensure its availability in September. Early planning for these duties results in a smoother process with fewer risks, contributing to mitigating the risk of questioning by tax authorities and avoiding onerous penalties.

It is essential that taxpayers pay special attention to their TP responsibilities, even before filing their income tax returns and/or closing their accounting figures for FY2023.

Performing preliminary analyses of intercompany transactions and verifying the compliance with the Arm's Length principle will mitigate risks. This, in turn, will avoid the need for potential subsequent corrections in the income tax return, with the associated adverse consequences, such as the loss of firmness of that return, the imposition of penalties for correction and the payment of taxes originally not determined (or the reduction of the tax credit balance).

Transfer Pricing Overview

It is worth recalling that the Colombian TP Rules in Colombia follows international standards established by Action 13 of the OECD/G20 BEPS Project, adapting the scope of the TP Documentation and establishing formal duties as follows:

1. TP Return
2. Local File
3. Master File
4. Country-by-Country Report or corresponding notification

Additionally, it is important to remember when an income tax taxpayer is subject to the TP Regime in Colombia. Firstly, the taxpayer falls within this regime if it meets either of the two thresholds for gross equity or gross income, as detailed below:

If the taxpayer meets any of the above thresholds and carried out intercompany transactions by type of operation in FY2023 equal to or greater than 45,000 UVT, equivalent to approximately USD$480,000 (for example, the cumulative purchases of inventory for distribution), with:

1. Foreign related parties
2. Related parties located in Colombian Free Trade Zone
3. Between Permanent Establishments (Branches) and foreign related parties / head office
4. Joint ventures, temporary alliances, other associative forms that do not give rise to legal entities, and other business collaboration contracts.

Then, the taxpayer must submit to the tax authority (DIAN) the formal duties related to the beginning of the section (points 1 to 4, or only 1 and 4 if the amount of transactions by type of operation is less than 45,000 UVT).

If the company engages in transactions with entities located in non-cooperating jurisdictions, with low or no taxation and preferential tax regimes (tax havens), whether are related or not, it must comply with the submission of TP formal duties regardless of the gross equity and gross income limits in the above table, and if the amount of the transaction by type of operation is greater than 10,000 UVT (equivalent to approximately USD$100,000).

TP Return:

The TP Return will contain a detailed list of transactions with foreign related parties, related parties located in Colombian Free Trade Zones, and/or entities domiciled in tax havens or preferential tax regimes, along with the results of TP analyses reported in the Local File.

Local File:

The Local File must contain the studies, documents, and other supports with which the income tax and complementary taxpayer demonstrates that its income, costs, deductions, assets, and liabilities incurred in the respective fiscal year complied with the Arm's Length principle.

Master File:

The Master File must provide an overview of the business of the Multinational Group, including the nature of its economic activities worldwide, its general TP policies, and its global allocation of income, risks, and costs. Companies that are required to submit a Local File and belong to a Multinational Group must also submit this report.

Country-by-Country Report:

Starting from FY16, taxpayers subject to the TP Regime who meet the assumptions of numeral 2 of article 260-5 of the Colombian Tax Code must submit the Country-by-Country Report. It is important to clarify that this duty is normally the responsibility of the parent company or the corporate entity of the Multinational Group.

Attribution of Profits Report for Permanent Establishments

On the other hand, Permanent Establishments must consider the formal duties they must fulfill in Colombia as income taxpayers regarding national and foreign-source income attributable to them. For the determination of such income, it must be based on criteria of functions, assets, risks, and personnel involved, defined with an Attribution of Profits Report.

The norm considers Permanent Establishments as any type of business vehicle of foreign entities such as branches, agencies, offices, factories, workshops, mines, quarries, oil and gas wells, or any other place of extraction or exploitation of natural resources.

Due dates for TP Formal Duties

Decree 2229 / 23 establishes permanent due dates according to business days. Companies obliged to submit the TP Return, Local File, and Master File must submit them virtually, considering the last digit of the Tax ID (without verification digit) following the due dates below:

Finally, for the submission of the Country-by-Country Report, Decree 2229 / 23 established the due date as December 13, 2024.

We are at your disposal to resolve any questions, do not hesitate to contact us if you require support to comply with the TP formal duties and/or in case you need to prepare the preliminary analysis prior to the determination of income tax. Remember that the TP penalty regime is onerous, so we recommend timely compliance with the duties, especially considering the changes mentioned in this document.