In April 2025, the Council of State of Colombia, the highest authority in contentious-administrative jurisdiction, issued a key ruling on transfer pricing, resolving the dispute in the case of Puerto Arturo S.A.S. vs DIAN (Case No. 25000-23-37-000-2021-00357-01). The dispute centered on the transfer pricing methodology used by the company to justify income derived from the sale of emeralds to a related party abroad and, in particular, on the validity of using comparables with losses in the economic analysis.
Background of the case and opposing positions
Puerto Arturo S.A.S., a mining company engaged in the export of emeralds, applied the Comparable Uncontrolled Price (CUP) method to demonstrate that the income obtained in its transactions with a related party complied with the arm’s length principle. To do so, it compared the average price per carat of the emeralds sold with the values determined by independent experts in the Colombian market.
The DIAN objected to both the method and its application. It argued that the emeralds were not sufficiently comparable in quality and condition for the CUP to be applied reliably. Consequently, it opted to apply the Transactional Net Margin Method (MTU), using an Operating Profit to Costs (MOCG) profitability indicator as a reference. Based on this new methodology and an alternative benchmarking study, management adjusted the company’s reported income upward, using the median of the interquartile range as a reference.
Technical debate: Can comparables with losses be used?
The debate centered on the fact that several of the companies selected in the DIAN study as comparables for the MTU had operating losses during the period analyzed. Management decided to exclude them without detailed analysis, arguing that their inclusion distorted the range and affected the reliability of the result.
Puerto Arturo challenged this automatic exclusion, arguing that the losses of these companies were not persistent and did not reflect a lack of functional comparability. According to the OECD Transfer Pricing Guidelines, which are applicable in Colombia, loss-making entities may be validly used as comparables if they meet functional criteria and are not affected by extraordinary circumstances.
Basis for the ruling: substance over form
The Council of State ruled in favor of Puerto Arturo S.A.S., establishing that the automatic exclusion of comparables with losses lacks technical basis if it is not accompanied by a qualitative analysis demonstrating why such companies do not reflect similar market conditions. The Court pointed out that the tax authority has a duty to justify technically and economically why an entity with losses is not comparable, rather than simply assuming that negative results disqualify it.
This approach reinforces the substantive interpretation of the arm’s length principle, in line with the court’s previous case law (e.g., Judgment No. 25000-23-37-000-2017-01997-01) and with the international standard requiring a comprehensive examination of functions, assets, and risks. In other words, the comparability analysis should not focus exclusively on the margins obtained, but on the economic structure of the companies being evaluated.
Relevance for transfer pricing practice in Colombia
The Council of State’s ruling sets a significant precedent for future audits in Colombia. First, it confirms that non-traditional methods, such as the MTU, must be applied with technical rigor and not with generic assumptions. Second, it limits the possibility of excluding comparables simply because they show isolated losses, unless there is evidence that those losses distort comparability. Third, it emphasizes the need for both the DIAN and taxpayers to document their economic analyses exhaustively and support the inclusion or exclusion of comparables with objective criteria.
In addition, the ruling states that the use of the interquartile range must be supported by a technically defensible sample, and that extreme results, whether positive or negative, cannot be arbitrarily excluded without affecting the neutrality of the analysis.
Conclusion
The decision in the Puerto Arturo S.A.S. case contributes to consolidating a more technical and less discretionary approach to the application of transfer pricing rules in Colombia. By requiring the tax administration to provide a higher level of justification and methodological consistency, it protects taxpayers from tax adjustments based on subjective criteria and promotes a more reasonable application of the arm’s length principle. In a regional environment where transfer pricing disputes are becoming increasingly common, this ruling strengthens legal certainty and reinforces convergence towards consistent international standards.
Source: TPCases