Transfer pricing in preferential tax regimes

February 15, 2022

Following Colombia’s commitment with the OECD to implement 15 actions of the BEPS Plan, Decree 1357 of 2021 was issued, which regulates the criteria to determine the existence of preferential tax regimes established in Article 260-7 of the ET.

Action 15 of the BEPS Plan states to limit the granting of tax incentives to those who do not carry out a real activity in the jurisdictions these incentives grant, as well as to promote and improve transparency and exchange of information.

1. Colombian legislation

There is no exact definition of preferential tax regimes, but criteria are established to determine their presence. A preferential regime will be present when two or more of the following criteria are met:  

  1. Lower tax rates concerning those that would apply Colombia to similar operations.  
  2. Lack of exchange of information or the existence of rules limiting it.  
  3. Lack of transparency at the legal or regulatory level or administrative operation.  
  4. Lack of substantive local presence requirements.  
  5. Regimes that can only be accessed by non-residents of the jurisdictions in which the preferential tax regime operates.  

2. Transfer pricing in these regimes

Income taxpayers who carry out operations with entities belonging to these regimes are obliged to comply with the transfer pricing regime and submit the supporting documentation and informative declaration.

3. Making payments or credits to these regimes

Payments or credits on account that constitute taxable income in Colombia for their beneficiary will be subject to withholding at source for income tax and occasional gain at the income tax rate for legal entities, which for 2022 corresponds to 35%.

According to article 124-2 of the ET, the payments to entities belonging to them will be constitutive of cost or deduction in income unless the respective withholding at the source has been made.

Source: Asuntos legales 14/02/22