The deductibility of costs for services received from related parties abroad is one of the areas most closely scrutinized by tax authorities in Latin America. The existence of a contract or formal compliance with transfer pricing obligations is not enough; economic substance and proof of benefit are concurrent and indispensable requirements for the expense to be deductible.
The recent ruling by the Colombian Council of State (February 2026) in the case against Needish Colombia S.A.S. (formerly Groupon) confirms the technical rigor with which the courts analyze the effective provision of intragroup services and the associated withholding obligations.
Background to the tax dispute
The controversy arose when the tax authority (DIAN) rejected the deduction of cross-border payments made by Needish Colombia to its affiliates: Needish Ltda. (Chile) for administrative services, and Groupon Inc. (United States) for management services.
The administrative court upheld the rejection of these costs based on two fundamental pillars of tax law and transfer pricing:
- The standard of proof and the “Benefit Test”
With regard to the services provided from Chile, the court determined that the company failed to demonstrate the effective provision of the service. Under the standards of the OECD Transfer Pricing Guidelines (Chapter VII), for an intra-group service to be deductible, it must provide economic or commercial value that improves the position of the recipient.
From a technical standpoint, the ruling highlights that:
- The contract only describes potential obligations, but does not prove performance.
- The absence of deliverables (emails, reports, minutes, activity logs, progress reports, among others) makes it impossible to verify that the service actually occurred during the audited period.
- Transfer pricing documentation does not replace the obligation to keep evidence of daily operations.
- Withholding tax and full compliance
Regarding payments to the parent company in the United States, the taxpayer argued that compliance with the transfer pricing regime took precedence over other obligations. However, the Council of State clarified that:
- Transfer pricing regulations govern the amount of the transaction (market value).
- General deductibility requirements, such as withholding tax, operate independently.
- Failure to withhold the corresponding tax automatically results in the loss of deductibility of the expense, regardless of whether the agreed price was at arm’s length.
Strategic assessment for multinational companies
This precedent underscores that transfer pricing management must be approached holistically. The post-BEPS trend in the region requires companies to focus not only on comparability analysis, but also on building a defense file that supports the economic reality of their transactions.
The risks of weak documentary support include:
- Double taxation: Rejection of the expense in the recipient country, without a corresponding adjustment in the provider country.
- Penalties for inaccuracy: Application of severe fines on unpaid tax.
- Substance questioning: Risk that the authority will reclassify the transaction under anti-abuse rules.
Conclusion: The importance of dynamic documentation
The Needish case is a critical reminder that “substance” is at the heart of modern international taxation. Companies must transition from a static (annual) documentation model to a dynamic model that captures valuable evidence in real time.
TPC Group, as a leading firm specializing in transfer pricing, supports its clients in the design and implementation of robust documentation protocols. Our approach ensures that intra-group services not only comply with the arm’s length principle, but also have the necessary evidentiary support to withstand highly complex technical audits throughout the region.
Source: TPcases