In 2026, the Colombian peso is at the center of one of the region’s most significant exchange rate movements. During the first half of the year, the Colombian currency appreciated significantly against the dollar and, following the presidential runoff in June, ranked among the best-performing emerging market currencies. Market analysts have attributed this performance, among other factors, to increased investor confidence following the election results and to the level of interest rates in Colombia.
Behind this macroeconomic scenario lies a significant implication for Transfer Pricing: a significant exchange rate fluctuation can affect the comparability analysis of Colombian companies with export operations, especially when there is a significant mismatch between the currency in which they generate their revenue and the currency in which they incur their costs.
The Mechanism Behind the Exchange Rate Effect
A Colombian company that exports goods or services and generates the majority of its revenue in dollars, but incurs a significant portion of its operating costs in Colombian pesos—such as salaries, leases, or certain local inputs—may face a currency mismatch in its financial structure.
When the peso appreciates against the dollar, each dollar of revenue translates into a smaller amount of pesos. If, at the same time, a significant portion of costs remains denominated in local currency, the entity’s operating margin may be reduced.
Therefore, the appreciation of the Colombian peso is relevant to the comparability analysis only when it generates material foreign exchange exposure and that exposure differs significantly from that observed in comparable companies, with a material effect on its revenue, costs, or margins.
This effect takes on particular importance when that margin is used as a profitability indicator in the application of Transfer Pricing methods, such as the Transactional Net Margin Method (TNMM).
The comparability issue arises when the independent companies selected as comparables are not exposed to similar foreign exchange conditions. This can occur, for example, when international comparables are used whose revenues, costs, and functional currency have a different structure from that of the Colombian entity being analyzed.
Under these circumstances, a company might report lower profitability than that observed in its comparables—not necessarily due to differences in the terms of related-party transactions, but because currency appreciation affected its results differently than it did the companies included in the benchmarking.
Why There Is No Automatic Exchange Rate Adjustment
The OECD Transfer Pricing Guidelines recognize economic circumstances as one of the economically relevant characteristics that must be considered in the comparability analysis.
This implies that market conditions, the geographic environment, and other economic factors that may influence prices or margins must be analyzed when determining whether the compared transactions are sufficiently similar.
The OECD does not require that every exchange rate fluctuation be automatically neutralized through a comparability adjustment; any adjustment must be analyzed on a case-by-case basis and must demonstrate that it improves the reliability of the comparison.
Therefore, justifying a margin below the arm’s-length range solely by stating that “the peso appreciated” could be insufficient from a technical perspective.
A stronger case requires quantitatively demonstrating how the exchange rate fluctuation affected the analyzed entity’s revenue, costs, and profitability and, most importantly, determining whether the companies used as comparables were exposed to reasonably similar economic circumstances.
What to Review in Analyses for Fiscal Years 2025 and 2026
For companies that are finalizing their Transfer Pricing documentation for fiscal year 2025 or monitoring their position for 2026, it is advisable to assess in advance the impact that exchange rate fluctuations may have on their results.
A first step is to determine the proportion of revenue denominated in foreign currency relative to costs incurred in Colombian pesos. This analysis makes it possible to gauge the entity’s actual foreign exchange exposure and assess whether its results are directly comparable to those obtained by the selected independent companies.
Likewise, the OECD Guidelines recognize that, depending on the circumstances, analyzing information spanning multiple fiscal years can be useful for understanding the economic factors affecting a transaction. Multi-year data can help determine whether a change in profitability is due to specific circumstances in a given fiscal year or is part of a longer-term trend.
However, the use of multi-year information does not, in and of itself, constitute a mechanism for correcting or neutralizing the effects of exchange rates, but rather an additional tool for understanding the economic circumstances of the transaction under analysis.
Checklist of Recommendations
- Quantify foreign exchange exposure. Determine the proportion of foreign currency revenue relative to costs denominated in Colombian pesos and measure its impact on the profitability of the transaction under evaluation.
- Review the economic circumstances of the comparables. Assess whether the companies used in the benchmarking have a reasonably similar foreign exchange exposure or adequately document any identified differences.
- Analyze data from multiple fiscal years when relevant. Assess whether multi-year data provides a better understanding of whether the observed variation corresponds to a specific circumstance of the period or to a longer-term trend.
- Quantitatively document the impact. Do not limit the explanation to a general reference to the appreciation of the peso. It is advisable to demonstrate, using financial information, how the exchange rate variation affected the entity’s revenues, costs, and margins.
- Carefully evaluate any comparability adjustments. It should not be assumed that an adjustment related to exchange rate differences will automatically be acceptable. Its application must be supported by an economic analysis demonstrating that it contributes to improving the reliability of the comparison.
The appreciation of the Colombian peso does not automatically imply that a result outside the arm’s-length range can be justified by exchange rate factors. However, when there is material exposure that differs from that of comparable companies, the exchange rate can become a relevant economic circumstance that must be properly considered and documented in the comparability analysis.
At TPC Group, we evaluate the impact of economic conditions and exchange rate volatility on comparability analyses for companies with international operations in Colombia, with the goal of strengthening the technical basis of their Transfer Pricing policies and documentation.
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