A closer look at TP compliance for businesses in Latin America
Carlos Vargas Alencastre and Johana Araujo Fuertes of TPC Group provide an overview of how businesses operating in Latin America need to meet transfer pricing documentation requirements.
There are transfer pricing (TP) documentation obligations adopted by Latin American countries that need to be complied with under Action 13 of the OECD’s BEPS Action Plan.
This article provides an overview of TP developments in Latin America focussing on countries with TP documentation requirements as set out in Action 13, and countries without TP documentation requirements.
Countries with TP documentation requirements under Action 13
TP regulations in Argentina are regulated by the Income Tax Law, whose scope of application is limited to transactions carried out with related parties abroad and/or parties resident in non-cooperating jurisdictions.
Argentina’s tax authority, the Federal Administration of Public Revenues (AFIP), introduced new requirements including a TP study through Form 4501 informative declaration, and Form 2668. The TP study and Form 2668 must be filed by the sixth month after closing. Also, in the last year, the AFIP has incorporated the submission of a master file and country-by-country report, the latter through Form 8097, for fiscal years ending December 31 2018, which should be filed by the 12th month after the end of the relevant year.
The TP regime in Brazil is unique in South America, due to its simplicity and the fact that it does not follow the OECD guidelines. Nevertheless, in 2016, Brazil introduced the third level of documentation of Action 13 – the country-by-country report to be submitted to the Federal Brazilian Tax Authorities (Receita Federal do Brasil, RFB).
As part of the convergence between the RFB’s TP guidelines and those of the OECD, in late 2020, the OECD issued a report presenting the shortcomings and strengths of the Brazilian system to align with the guidelines.
The Chilean TP legislation is regulated by Article 41-E of the Income Tax Law (LSIR), which indicates that operations carried out with foreign-related parties and/or with parties resident in tax havens are subject to TP.
Taxpayers must make an informative declaration of transfer prices, which until 2019 was submitted to the Internal Tax Services (SII) by means of DJ 1907 and have a technical study to support the declared.
Likewise, Chile has incorporated the documentation indicated in Action 13. Since fiscal year 2017 the country-by-country report should be submitted through Form 1937.
Also, in August 2020, the first two levels of transfer price documentation, the local file and the master file were incorporated. This new requirement means that taxpayers must file Forms 1951 and 1950, respectively, on the last working day of June.
In Colombia, the obligated parties are those who carry out operations with foreign related parties, however, it also includes those domiciled in a free trade zone and in a tax haven country.
An informative declaration of transfer prices must be submitted to the National Tax and Customs Directorate (DIAN). This is submitted electronically on Form 120 every July.
Since the reform of 2016, the local file, master file and country-by-country report must be submitted to the DIAN on Form 120.
In Costa Rica, Article 81 bis of the Income Tax Law states that the TP rules apply to Costa Rican taxpayers that carry out operations with related parties both abroad and domiciled in the country.
Regarding formal obligations, the regulation has established an informative declaration that should be filed before the General Tax Directorate (DGT), however, to date, the DGT has not indicated the form and terms of presentation.
In 2018, Costa Rica incorporated the filing of the country-by-country report, and the local company information report and the corporate information report, in line with the OECD.
The TP regime in Mexico is currently regulated by the Income Tax Law.
This law regulates the formal obligations by establishing a declaration for transactions carried out with foreign related parties, which must be filed together with the annual tax return for the year before the Tax Administration Service (SAT) through Annex 9 of the multiple informative declaration (DIM).
Mexico also adopted the three levels of documentation of Action 13, whereby certain taxpayers must file the local file, master file and country-by-country report by December 31 of the fiscal year immediately following the year in which the transactions were carried out.
In Panama, the TP rules are regulated in the Tax Code that establishes an informative TP statement, which must be submitted to the General Directorate of Revenue (DGI) within six months from the closing date of the corresponding fiscal period through Form 930.
Since 2016, Panama has incorporated the supporting documentation based on Action 13, with which the taxpayer must have a TP study that requires information as a local file and a business group report as a master file, in order to be submitted upon requirement of the DGI. In 2019, the obligation to file the country-by-country report was introduced, as of fiscal year 2018.
TP rules were introduced in 2019 in Paraguay, however they did not come into force until January 2021 when it was regulated.
This new regulation requires that the TP study must show information of the local taxpayer, information of the group and financial situation, with the local file, master file and country-by-country report, however, the Under Secretariat of State of Taxation (SET) has not regulated a form or deadline for the presentation of the information.
In Peru, the TP regime is subject to its application to transactions with related parties, both foreign and domiciled, and to those carried out with parties domiciled in tax havens or preferential tax regimes.
Until fiscal year 2015, Peru had regulated the obligation to submit to the National Superintendence of Customs and Tax Administration (SUNAT) an informative sworn statement on TP, as well as a technical study; however, as of fiscal year 2016, the local file, master file and country-by-country reports were established, the latter two required as of fiscal year 2017.
It should be noted that the filing of the country-by-country for fiscal years 2017, 2018 and 2019 was suspended, for some taxpayers, until the last business day of the month following the publication on SUNAT’s website of the approval of the OECD confidentiality standard, which occurred in December 2020. This meant that taxpayers had to file by January 29 2021 through the receipt and automatic exchange of information (IR AEOI) system.
In Uruguay, TP rules came into force in 2007 for those transactions carried out with related parties located abroad, including tax havens.
Now, as regards their formal obligations, taxpayers must file before the General Tax Directorate (DGI) an informative TP statement through Form 3001 up to the ninth month, from the tax closing date.
Also, it should be noted that in 2017, Uruguay incorporated the supporting documentation master file and country-by-country report, the latter for multinational groups, both of which must be filed within 12 months following the end of the fiscal year.
Countries without TP supporting documentation requirements under Action 13
Bolivia incorporated its TP regulations in 2014 through the Investment Promotion Law, determining that taxpayers are obliged to submit to the National Tax Service (SIN) the informative declaration of related party transactions through Form 601, which must be supported by a technical TP study.
In Ecuador the TP rules are introduced in the Organic Law of the Internal Tax Regime (LORTI) and its regulations, which establish as formal obligations the presentation of the ‘annex of operations with related parties’ and a comprehensive TP report before the Internal Revenue Service (SRI).
The deadline for filing both is two months after the filing of the annual income tax return.
This Central American country introduced the TP regime to its Tax Code for operations with related parties and tax havens and established the filing of the ‘report of operations with related parties’ declaration on Form 982 before the General Directorate of Internal Taxes (DGII). Form 982 must be filed within the first three months after the tax closing.
The special rules of valuation between related parties in Guatemala were incorporated in 2012. However, the application and formal obligations have been in force since 2015 with the presentation of an informative declaration of TP before the Superintendence of Tax Administration (SAT) through an annex to the ‘annual income tax sworn’ declaration by March 31 of the following year. A technical study of TP must also be presented.
The TP regime in Honduras has been in force since 2015, the year in which the TP law was regulated, incorporating the obligation to file a TP affidavit together with its annual tax return before the Revenue Administration Service (SAR), which must be filed by April 30 of the following fiscal year through the Det Live application.
The TP rules were introduced in 2012, however they have been in force since 2017. At the time of filing, taxpayers must have the income tax return, the documentation of the operations with related parties; however, so far no regulation or additional provisions have been established that indicates the form of this declaration. The General Directorate of Income (DGI) only ask that companies submit the TP study.
TP rules have been in force since 2014 in the Dominican Republic. Taxpayers must submit the informative declaration of operations between related parties (DIOR) to the Dominican Tax Authority (DGII) within 180 days after the tax closing and must have a technical study of TP in case the DGII requires it.
In Venezuela, the TP regime is incorporated in the Income Tax Law for operations with foreign related parties. The obliged subject according to the regulation must file the ‘informative declaration of transactions with related parties’ before the National Integrated Customs and Tax Administration Service (SENIAT) through Form PT-99 and annexes until June of the year following the end of the fiscal year.
Carlos Vargas Alencastre
T: +51 979 221 482
Carlos Vargas Alencastre is founder and CEO of TPC Group. He is an international TP consultant providing TP advice in countries such as Chile, Colombia, Mexico and Panama.
Carlos has over 30 years’ experience in audit, taxes, management and consulting. He is a certified public accountant and an independent auditor with expertise in the application of double taxation agreements and the implementation of International Financial Reporting Standards (IFRS).
Carlos is a graduate of the Inca Garcilaso de la Vega University.
Johana Araujo Fuertes
T: +51 162 797 87
Johana Araujo Fuertes is a TP consultant at TPC Group, with more than five years’ experience in consulting and auditing in tax matters, with a focus on international taxation and TP.
Johana has a law degree from the Pontifical Catholic University of Peru.