Comparability is one of the fundamental pillars of the Transfer Pricing regime. Its proper application makes it possible to determine whether the terms agreed upon between related companies reflect those that would have been agreed upon between independent parties under similar circumstances, thereby ensuring compliance with the arm’s-length principle.
In Colombia, this concept is regulated by Article 260-4 of the Tax Code, which establishes that two transactions are comparable when the differences between them do not significantly affect the price or profit margin under analysis, or when such differences can be eliminated through reasonably reliable adjustments. Although this rule is part of Colombian law, its application is aligned with the international standards promoted by the Organization for Economic Cooperation and Development (OECD), which are used by numerous jurisdictions around the world.
A Dispute Involving River Transport and Pipeline Transport
The practical relevance of this principle was reflected in a recent decision by Colombia’s Council of State regarding a hydrocarbon transport transaction between related parties.
The dispute arose when a taxpayer used the Comparable Uncontrolled Price method to substantiate the value of river transport services provided to a related company abroad. As a market benchmark, the company used regulated rates applicable to the transport of crude oil via pipeline, arguing that such a service constituted a comparable economic alternative in the absence of river transport.
However, the Tax Administration considered that both activities presented substantial differences from a functional, operational, and economic standpoint. Among other aspects, differences were identified regarding the assets used, the risks assumed, and the provision of complementary logistics services that were part of the operation under review. Consequently, the tax authority rejected the proposed methodology and applied an alternative approach based on profit margins.
The Limits of Substitute Services as Comparables
One of the main contributions of this decision is that it clarifies that the existence of a substitute service from a commercial perspective does not necessarily imply that such a service is comparable for Transfer Pricing purposes.
In business practice, it is common to identify economic alternatives that compete within the same market or satisfy similar needs. However, comparability analyses require a much more in-depth evaluation that considers the specific characteristics of the transactions, the functions performed by the parties, the risks assumed, and the economic circumstances surrounding each transaction.
The Council of State’s decision reinforces the idea that general economic similarity between two activities is not sufficient to justify the application of the Comparable Uncontrolled Price method when there are significant differences that have not been adequately analyzed or adjusted.
The Importance of Comparability Adjustments
One of the most sensitive aspects of any Transfer Pricing analysis is the identification and quantification of differences that may affect the reliability of a comparison.
When discrepancies exist between the transactions under review and the selected comparables, it is necessary to analyze whether such differences can be corrected through technically sound adjustments.
This requirement takes on special significance when regulated rates are used, since their determination may be based on factors different from those at play under normal market conditions.
The ruling makes it clear that it is not enough to simply assert that two transactions are similar. Taxpayers must objectively demonstrate how the identified differences impact economic results and how the proposed adjustments allow for a reasonable level of comparability to be achieved.
The Burden of Proof in a Tax Audit
Another key aspect of the ruling is the importance of technical documentation during tax audit processes.
Tax authorities typically evaluate not only the final result of a Transfer Pricing study but also the quality of the analysis underlying the selection of the method, the choice of comparables, and the application of economic adjustments. Therefore, the burden of proof rests primarily with the taxpayer, who must demonstrate that the methodology used adequately reflects market conditions.
In this context, contemporaneous documentation and the traceability of decisions made during the preparation of the study become essential tools for supporting the company’s tax position and reducing the risk of disputes.
Lessons for Multinational Groups in Latin America
Although this decision was issued in Colombia, its implications extend beyond national borders. The comparability criteria developed by Colombian case law are closely aligned with the principles contained in the OECD Transfer Pricing Guidelines, which serve as a reference for numerous countries in Latin America.
Multinational companies operating in sectors such as transportation, logistics, energy, or regulated services frequently face challenges related to the selection of comparables and the need to justify functional or economic differences between operations. Therefore, the Colombian experience serves as a reminder of the importance of developing robust analyses that provide a technical basis for the conclusions reached.
Furthermore, the case demonstrates that the risks associated with insufficiently documented comparability can extend beyond an administrative audit and lead to highly complex legal disputes.
The recent decision by the Council of State reaffirms that comparability remains one of the most critical elements in any Transfer Pricing analysis. The selection of appropriate comparables, the identification of economically significant differences, and the application of technically sound adjustments are key factors in ensuring the reliability of the results obtained.
In an environment of increasing tax scrutiny and more sophisticated tax audits, companies must pay special attention to the quality of their comparability analyses and the consistency of the documentation supporting their intercompany transactions. Proper management of these aspects not only strengthens regulatory compliance but also helps reduce tax risks and provides greater legal certainty for international operations.
At TPC Group, we have specialists in Transfer Pricing and international taxation who advise multinational companies on preparing comparability analyses, documenting intercompany transactions, and defending against tax audits. Our team provides technical solutions aimed at reducing tax risks and strengthening compliance with obligations in the various jurisdictions where our clients operate.
Source:
Colombian Council of State, Fourth Section, Ruling CE 28726 of March 26, 2026. Regulatory framework: Articles 260-3 and 260-4 of the Colombian Tax Code.