Colombia enacted Law 1819 on 29 December 2016, adopting a tax reform that makes substantial changes to the current tax legal framework, including changes in the levels of transfer pricing documentation.
According to Law 1819, the three different levels of transfer pricing supporting documentation established by Action 13 of the Organisation for Economic
Co-operation and Development’s (OECD’s) Action Plan on Base Erosion and Profit Shifting (BEPS) now apply in Colombia: the country-by-country report, master file and local file.
Country-by-Country (CbC) Report
Applicable to FY 2016, Law 1819 requires the Colombian parent of a multinational group to submit a CbC report under the following circumstances:
- The parent has affiliates, subsidiaries, branches or permanent establishments abroad.
- The parent is not a subsidiary of another entity resident abroad.
- The parent must prepare, file and disclose consolidated financial statements.
- The parent has reported annual consolidated group revenue equal to or exceeding COP2.3 billion (approx. US$766 million).
Law 1819 allows a foreign controlling entity to appoint a Colombian resident, or foreign resident with a permanent establishment in Colombia, as the responsible party for filing the CbC report.
Law 1819 requires one or more entities or permanent establishments located or resident in Colombia that belong to the same multinational group to file a CBC report under the following circumstances:
- The entities jointly have a participation equal to or higher than 20% of the consolidated revenue.
- The parent company has not filed the CbC report in its home country.
- The group has consolidated revenues equal to or exceeding COP2.3 billion in the previous tax year.
The revenue threshold established by Law 1819 is very close to the limit provided in BEPS Action 13 (€750 million), which the OECD states should be used as a reference for the local regulations using the average exchange rate of January 2015.
Law 1819 does not clearly indicate which company within the group will file the CbC report. It also does not contain provisions as to how a constituent entity in Colombia can fulfill the CbC reporting obligation (on behalf of its foreign parent) by filing the report locally in Colombia, as recommended by the OECD.
Finally, Law 1819 does not contain provisions on the filing, forms, periods or conditions for CBC reporting. Those aspects will be the subject of regulations to be issued by the Government.
Master file and local file
Besides the CbC report, Law 1819 also requires taxpayers to include the master file and local file in their transfer pricing documentation as set forth in BEPS Action 13.
The master file must contain all relevant multinational group information. The local file is the equivalent of the transfer pricing report that has been usually filed by the taxpayer.
The requirements for the master file are expected to be defined in a future regulation. It is unclear when the master file must be included in the transfer pricing documentation. It is expected that future regulations will provide more details.
EYG no. 00708-171Gbl