As Colombia’s tax authority (DIAN) prepares for the upcoming 2025 Transfer Pricing deadlines, taxpayers subject to the regime are reminded of a critical compliance requirement: any arm’s-length adjustments must be accurately calculated and consistently reflected across all reporting submitted to the tax authority.
The Legal Basis for the Adjustment
The DIAN specified that these adjustments must be made in accordance with the provisions of Article 260-3 of the Tax Code, which establishes the methods for determining the price or profit margin in transactions between related parties.
These methods include the Comparable Uncontrolled Price, the Resale Price Method, the Cost Plus Method, the Transactional Net Margin Method, and the Profit Split Method. In each case, the most appropriate method must be selected based on the characteristics of the transaction and the available information.
Where should the adjustment be reflected and documented?
The first place is the income tax return itself. When a taxpayer determines that the result of a transaction with related parties does not comply with the arm’s-length principle and an adjustment is required, this adjustment must be incorporated into the calculation of the taxable income for the period.
The second is Form 2516 – Tax Reconciliation Report, attached to Form 110, in which the reconciliation between the accounting result and the tax result must be documented, including, where applicable, the effects resulting from Transfer Pricing adjustments.
The third document is the Transfer Pricing Informative Affidavit, in which the amount of the adjustment must be specifically reported in box 86, intended for reporting the adjustment made to taxable income.
Furthermore, the DIAN has indicated that the adjustment must be duly substantiated in the Local File, identifying the information that allows it to be linked to the corresponding accounting and tax records.
Why is consistency among reported information critical?
The risk of inconsistency arises both when an adjustment is omitted from any of the applicable documents and when the reported values do not match one another.
For example, an adjustment correctly reflected on the tax return, but not reported or incorrectly entered in box 86, can result in discrepancies detected by the tax authority when cross-checking information.
This can occur even when the technical Transfer Pricing analysis supporting the adjustment is accurate.
What should taxpayers review?
Taxpayers subject to the Transfer Pricing regime to whom these obligations apply should verify that the adjustment:
- is correctly included in the income tax return;
- is properly documented on Form 2516;
- is reported consistently in box 86 of the Transfer Pricing Informative Affidavit; and
- is supported by the Local File of supporting documentation.
Checking this consistency before filing the corresponding returns reduces the risk that a technically correct adjustment will result in observations due to discrepancies in the reported information.
At TPC Group, we assist our clients in Colombia with the proper determination and documentation of Transfer Pricing adjustments, verifying consistency between the income tax return, the Form 2516, and the Informative Affidavit.