Colombia's National Directorate of Taxes and Customs (DIAN) released detailed guidelines (the Guidelines) to clarify the procedure for Advanced Transfer Pricing Agreements (APAs) requests in order to ensure certainty between the parties regarding their transfer pricing arrangements. These guidelines are the result of cooperation with the OECD and World Bank Group, including the work carried out by Randall Fox and Joel Cooper during their time at the World Bank Group.
The new guidelines cover three types of APAs:
Unilateral APAs - whereby an agreement is entered into between a taxpayer and the Colombian tax authorities alone. Bilateral APAs - whereby a taxpayer requests that the Colombian Competent Authority reach an advance pricing agreement with a double tax convention partner in accordance with the arm's length principle under the applicable double tax convention. Multilateral APAs - whereby a taxpayer requests that the Colombian Competent Authority reach agreement with two or more double tax convention partners. Under the Guidelines, taxpayers are encouraged to pursue bilateral/multilateral APAs where the transactions are covered by a double tax convention; unilateral APAs will only be considered in exceptional circumstances (e.g. where the tax convention partner is not willing to enter into negotiations).
In order to be covered by an APA, the value of the transactions must exceed UVT100,000 in the year prior to the request or, if the transaction is new, UVT100,000 in the year of the request (according to projections). UVT100,000 is equivalent to COP3,427 billion (approximately USD1 million). The UVT value is updated on a yearly basis depending on the inflation rate.
The advance pricing agreement process in Colombia takes place in six stages:
Stage 1 - pre-filing meeting: although this stage is optional, it is highly recommended as it provides a way to assess the likelihood of success of the APA application. Stage 2 - formal application: the taxpayer files information and the Colombian tax authorities confirm whether the application has been accepted within nine months (for unilateral APAs), or to do by mutual agreement with the treaty partner (for bilateral and multilateral APAs). Stage 3 - evaluation: the tax authorities evaluate the information filed and do fieldwork as necessary. Stage 4 - negotiation: a discussion with the taxpayer (for unilateral APAs) or the exchanging of position papers and discussions with...