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13.3.3. Documentation Requirements

a) Informative Transfer Pricing Return

Under Article 260-9 and subparagraph 2 of Article 260-7 of the Tax Code, and Decree 3030 of 2013, any income tax taxpayers which carry out transactions with foreign related parties and/or are obliged to comply with the Colombian transfer Pricing Regime, are required to file an informative transfer pricing return for the taxable year under consideration, if they meet at least any one of the following two conditions:

  • Hold gross assets as of 31 December equal to or greater than 100,000 UVT;, or
  • Earn gross revenues in the taxable year for an amount equal to or greater than 61,000 UVT.

The obligation applies equally to any taxpayer located or established in the national customs territory who, even if not meeting the above tests carries out transactions with related parties established in a Free-Trade Zone. Similarly, the requirement applies to any taxpayer established or domiciled in the national customs territory who carries out transactions with parties, whether or not related, established or domiciled in a tax haven, regardless of whether the above tests are met.

The informative transfer pricing return must be filed on the dates set by the National Government yearly.

b) Supporting Documentation

Under Article 260-5 and Decree 3030 of 2013, income tax taxpayers that carry out transactions with foreign related parties, within Free-Trade Zones in Colombia or with any persons, companies, entities or enterprises which are located, are residents of or are domiciled in tax havens, must prepare and submit the transfer pricing supporting documentation or so-called transfer pricing study for the corresponding taxable year if, in addition to meeting the conditions that trigger the obligation to file an informative transfer pricing return, they meet the following conditions:

  • That the total value of the transactions carried out with related parties during the year is greater than 61,000 UVT.
  • However, where the total annual amount per transaction does not exceed the equivalent of 32,000 UVT, the taxpayer will not be required to include this transaction in the transfer pricing study.

Additionally, in the case of transactions carried out with entities located in tax havens  the threshold is lower. In fact the taxpayer will be required to file a transfer pricing study when the total annual amount of the transactions carried out with these entities is greater than 10,000 UVT.

In the case of transactions that result in payments to persons, companies, institutions or companies located, resident or domiciled in tax havens, the taxpayers must document and demonstrate the detail of the functions performed, assets used, risks assumed and all costs and expenses incurred by the person or company located, resident or domiciled in the tax haven for conducting the activities that generated those payments, Failing to comply with the previous requirement implies that such payments are treated as non-deductible.

The supporting documentation must be presented on the dates set by the National Government year by year.

c) Obligation to preserve documents, information and evidence

Any income tax taxpayers that carry out transactions with foreign related parties, or with related parties located in Free-Trade Zones, or with any persons, companies, entities or enterprises that are located, are residents of or are domiciled in tax havens, will be required to preserve the documents, information and evidence backing said transactions for a term of five years.

d) Penalties

In the event that an income taxpayer subject to the regime does not meet any of the formal obligations described above, it will be subject to the sanctions described in Article 260-11 of the Tax Code which are:

A. Supporting documentation.

1. Penalty for late submission of the supporting documentation. The late submission of supporting documentation will result in the imposition of a penalty for late submission of the supporting documentation, which is determined as follows:

a. Submission of the supporting documents within the first fifteen working days after the deadline for submission will lead to the imposition of a penalty equivalent to 75 UVT for each working day of delay, not exceeding 1,125 UVT in total.

In the case of taxpayers whose operations subject to the transfer pricing regime, in the year or taxable period to which refers the supporting documentation, are of a lower amount to the equivalent of 80,000 UVT, the penalty applicable will be of 15 UVT for each working day of delay, without exceeding 225 UVT in total.

b. Submission of the supporting documentation after the first fifteen working days after the deadline for submission will lead to the imposition of a penalty equivalent to 1,200 UVT for each month or fraction of a calendar month delay in the submission of documentation, without exceeding 14,400 UVT in total.

In the case of taxpayers whose operations subject to the transfer pricing regime, in the year or taxable period to which refers the supporting documentation, are of a lower amount to the equivalent of 80,000 UVT, the penalty applicable will be of 250 UVT for each month or fraction of a calendar month delay, without exceeding 3,000 UVT in total.

2. Penalty for inconsistencies in the supporting documentation. When the supporting documentation relative to one or more of the transactions subject to the transfer pricing regime, present inconsistencies such as errors in information, information whose content does not correspond to the requested, or information that does not let to verify the compliance of the transfer pricing regime, it will lead to the imposition of a penalty equivalent to 1% of the value of those transactions, without exceeding 3,800 UVT in total.

In the case of taxpayers whose operations subject to the transfer pricing regime, in the year or taxable period to which refers the supporting documentation, are of a lower amount to the equivalent of 80,000 UVT, the penalty may not exceed 800 UVT.

3. Penalty for information omitted in the supporting documentation.37 When information about transactions subject to the transfer pricing regime is omitted in the supporting documentation, it will result in the imposition of a penalty of 2% on the total value of such transactions, without exceeding 5,000 UVT, besides the rejection of the costs and deductions arising in operations for which no information was provided.

In the case of taxpayers whose operations subject to the transfer pricing regime, in the taxable period to which refers the supporting documentation, are of a lower amount to 80,000 UVT, the penalty may not exceed 1,400 UVT.

When from the supporting documentation is not possible to establish the base amount for determining the penalty for omitting information, such base amount will be determined taking into account the information related to the operations for which the information was omitted contained in the informative transfer pricing return. In the event it is not possible to set the penalty taking into account the information contained in the transfer pricing return, the penalty will correspond to 1% of the net income reported in the last income tax return filed by the taxpayer. If there is no income reported, the penalty will correspond to 1% of the gross equity reported in the last income tax return filed by the taxpayer, without the penalty exceeding the amount of 20,000 UVT.

4. Penalty for information omitted in the supporting documentation related to individuals, companies, organizations or companies located, resident or domiciled in tax havens.38  When information relating to transactions with individuals, companies, organizations or companies located, resident or domiciled in tax havens is omitted in the supporting documentation, in addition to the rejection of the costs incurred and the deductions applied in such transactions, a penalty equivalent to 4% of the total value of such transactions is generated, without the penalty exceeding 10,000 UVT.

In any case, if the taxpayer amends the omission prior to the notification of an official tax assessment (“liquidación oficial de revisión”), the costs and deductions will not be rejected.

5. Reduced penalty in relation with the supporting documentation. The penalties referred above in points 2, 3 and 4 of letter A, will be reduced to 50% of the amount determined in the statement of objections (“pliego de cargos”) or the special requirement (“requerimiento especial”) of the tax authority, as appropriate, if inconsistencies or omissions are rectified by the taxpayer before the notification of the decision imposing the penalty or the official tax assessment, as appropriate. To this end, the company shall submit to the tax authority a document accepting the reduced penalty, in which it is established that the omission was amended, as well as the payment done or the corresponding payment agreement agreed.

The procedure for applying the penalties mentioned above shall be the one specified in Articles 637 and 638 of the Tax Code. When the penalty is imposed in an independent resolution, the sanctioned person or entity will be previously informed about the statement of objections, and will have a term of one month to respond.

6. Penalty for correcting the supporting documentation. When, after the notification of an special requirement or the statement of objections, as appropriate, the taxpayer amends the supporting documentation modifying the methods used for determining the price or profit margin, or the criteria of comparability, the penalty will result in 4% of the total value of the transactions subject to the transfer pricing regime, without the penalty exceeding 20,000 UVT.

According to the tax authority in Ruling No. 7511 of 2015, following a restrictive interpretation, there are no applicable sanctions to the taxpayer that, before the notification of the special requirement or statement of objections, opts to amend voluntarily its supporting documentation in order to amend the inconsistency or omission. Also, said entity stated that the sanction described in point 6 literal A exclusively applies when the amendment is related to the transfer pricing methods or the comparability criteria.

B. Informative Transfer Pricing Return

1. Penalty for late submission of the Transfer Pricing Return. A late submission of the informative transfer pricing return will result in the imposition of a penalty, which shall be determine as follows:

a. Submission of the transfer pricing return within the first fifteen working days following the deadline for submission will lead to the imposition of a penalty of 50 UVT for each working day of delay, without exceeding 750 UVT in total.

In the case of taxpayers whose operations subject to the transfer pricing regime, in the year or taxable period to which the information is related, are of a lower amount to 80,000 UVT, the penalty will be of 10 UVT for each working day of delay, without exceeding 150 UVT in total.

b. Submission of the transfer pricing return after the first fifteen working days following the deadline for submission will lead to the imposition of a penalty of 800 UVT for each month or fraction of a calendar month delay in the submission of the return, without exceeding 9,600 UVT in total.

In the case of taxpayers whose operations subject to the transfer pricing regime, in the year or taxable period to which the information is related, are of a lower amount to the equivalent of 80,000 UVT, the penalty shall be 160 UVT for each month or fraction of a calendar month delay, without the penalty exceeding 1,920 UVT in total.

2. Penalty for inconsistencies in the informative transfer pricing return.39When the transfer pricing return contains inconsistencies regarding one or more transactions subject to the transfer pricing regime, it will lead to the imposition of a penalty of 0.6% of the value of those transactions without the penalty exceeding 2,280 UVT.

In the case of taxpayers whose operations subject to the transfer pricing regime, in the year or taxable period to which the information is related, are of a lower amount than 80,000 UVT, the penalty may not exceed 480 UVT.

It is understood that there are inconsistencies in the transfer pricing return when the data and figures registered in the transfer pricing return do not match with the supporting documentation.

3. Penalty for omitted information in the transfer pricing return.40  When information about transactions subject to the transfer pricing regime is omitted in the transfer pricing return, it will result in the imposition of a penalty of 1.3% on the total value of such transactions, without the penalty exceeding 3,000 UVT. In addition the costs and deductions arising in operations for which no information was provided will be rejected.

In the case of taxpayers whose operations subject to the transfer pricing regime, in the year or taxable period to which the transfer pricing return relates, are of a lower amount that 80,000 UVT, the penalty may not exceed 1,000 UVT.

When it is not possible to establish the base amount for determining the penalty for omitting information, the penalty will correspond to 1% of net income reported in the last income tax return filed by the taxpayer. If there is no income reported, the penalty will correspond to 1% of the gross equity reported in the last income tax return filed by the taxpayer, without the penalty exceeding 20,000 UVT.

4. Penalty for information omitted in the informative transfer pricing return related to individuals, companies, organizations or companies located, resident or domiciled in tax havens. When information related to transactions with individuals, companies, organizations or companies located, resident or domiciled in tax havens is omitted in the transfer pricing return, besides the rejection of the costs and deductions incurred in such transactions, a penalty of 2.6% of the total value of such transactions is accrued, without the penalty exceeding 6,000 UVT.

In any case, if the taxpayer amend the omission prior to the notification of an official tax assessment, the costs and deductions will not be rejected.

Likewise, once notified the special requirement, it will be accepted only the costs and deductions for which the taxpayer fully demonstrates that they were determined in accordance with the arm's length principle.

5. Penalty for not filing the transfer pricing return. Those who fail to comply with the obligation to submit the transfer pricing return, being obliged to do so, will be required by the tax authority to submit it, previous verification of their obligation. A taxpayer who fails to submit the transfer pricing return may not subsequently invoke it as evidence in its favor and this fact will be taken as evidence against him.

When the transfer pricing return is not submitted within the term established by the tax authority, it will lead to the imposition of a penalty of 10% of the total value of the transactions made during the corresponding fiscal year subject to the transfer pricing regime, without the penalty exceeding 20,000 UVT.

6. Reduced penalty in relation with the transfer pricing return. The penalties referred above in points 2, 3 and 4 of letter B will be reduced to 50% of the amount determined in the statement of objections or the special requirement, as appropriate, if inconsistencies or omissions are amended by the taxpayer before the notification of the decision imposing the penalty or the official tax assessment, as appropriate. To this end, the taxpayer shall submit a document to the tax authority accepting the reduced penalty, in which it is established that the omission was amended, as well as the payment done or the corresponding agreement of payment reached.

The transfer pricing return might be voluntarily amended by the taxpayer within the two (2) years after the deadline to file determined by the government.  

This penalty for not filing prescribes in five (5) years counted from the deadline to file the return.

In the case of financial operations, particularly involving interest loans, the base amount for calculating the penalty will be the amount disbursed and not the interest agreed with related parties.

C. General penalties

Penalty for repeated violation. When the taxpayer commits the punishable conduct, it will be subject to a penalty of 20,000 UVT per year or taxable period, for which the punishable behavior is determined.

In connection with the transfer pricing regime, what constitutes a  punishable inaccuracy is the use in the income tax return, in the transfer pricing return, in the supporting documentation or any inform provided to the tax administration, of data or false factors, wrong, incomplete or distorted the determination of revenues, costs, deductions, assets and liabilities related to operations with related parties as specified in Articles 260-1 and 260-2 of the Tax Code, with prices or profit margins that are not consistent with those that would have been had used by independent parties in comparable transactions, resulting in a lower income tax or balance payable, or in a greater balance in favor of the taxpayer. For this purpose, the applicable penalty amounts to 160% of the higher tax amount determined by the tax authorities (Article 647 of the Tax Code).

37In Ruling No. 7511 of 2015, the tax authority recognized that failing to file the supporting documentation cannot be sanctioned according to this numeral, given that said sanction covers only circumstances where said documentation has been filed.

38 See Ruling No. 7511 of 2015.

39  The tax authority determined in Ruling No. 33106 of 2015 that, when data and amounts established in the informative transfer pricing return do not coincide with the supporting documentation, the result is an inconsistency which is punishable under point 2 of literal B of article 260-11.

40The tax authority stated that said sanction is not applicable before the notification of the special requirement or statement of objections, when the taxpayer voluntarily amends its informative return. In relation to the voluntarily amendment of the return when some information was omitted, article 25 of Decree 3030 applies. (Ruling No. 33106 of 2015)