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Transfer pricing and tax reform – ITR’s Latin America Special Focus launched

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As Latin American countries increasingly align with the OECD, transfer pricing (TP) remains a hot topic, while jurisdictions continue to introduce tax reforms in the wake of COVID-19. ITR’s correspondents offer an overview.

Click here to read all the chapters from ITR's Latin America Special Focus.

The Latin American tax landscape is in a period of flux as countries’ increasing alignment with the OECD necessitates amendments to TP policy. In many cases, this translates to increasingly complex and stringent requirements for taxpayers, or higher penalties for failing to comply. Meanwhile, other important topics include M&A, tax disputes, and incoming tax reforms.

Copper Wolf provides an overview of international M&A in Mexico, assessing the legal and tax aspects of M&A involving both foreign and domestic companies. As the authors write, Mexico can be very formalistic, meaning that compliance with M&A requirements can be more important than the substance of the transaction. Companies should be aware of the complexity and difficulties this can introduce.

In addition, our authors from Deloitte Andean States write about tax transparency in Colombia, Peru, and Venezuela. This is a particularly hot topic as Colombia joined the OECD in 2020, requiring an overhaul of its TP audit capabilities. Meanwhile, the Peruvian tax authority acquired greater powers to request sensitive information from taxpayers, and Venezuela increased fines for TP noncompliance.

TP is also the topic of choice for Deloitte Chile, whose authors write about the complex and high-stakes audit environments in Argentina and Chile. The Argentinian tax authority has broadened the scope of its audits and is increasingly asking taxpayers questions that are tailored to the company.

Deloitte Brazil discusses how Brazil’s OECD membership will affect TP in the country, and provides an update on the consequences of discontinuing the Libor rate. Brazil’s alignment with the OECD is likely to precipitate changes in local laws, regulations, policies, and practices.

Meanwhile, Deloitte Mexico’s authors write about TP developments in Mexico, Guatemala, El Salvador, Costa Rica, Nicaragua, Honduras, Panama, and Dominican Republic. Some changes in Central American tax policy – including Costa Rica’s OECD membership – will undoubtedly introduce obligations for taxpayers relating to tax documentation and reporting.

At Galicia Abogados, our authors discuss the evolution of the substance-over-form doctrine in Mexican tax disputes, offering a chronological overview of the principle along with an analysis of the relevant case law. The authors write about the dangers of an inflexible legal approach, arguing that this introduces distance between taxpayers and tax authorities, and results in the creation of artificial tax bases that do not reflect the economic reality.

Baker Mackenzie and Trench Rossi Watanabe focuses on Argentina, Chile, Colombia Peru, Mexico and Venezuela, covering topics including the non-taxation of state benefits in Brazil, an increase in Chilean capital gains tax, and the income tax treatment of silent partnerships in Peru.

Finally, QCG Transfer Pricing Practice provides an overview of how TP is evolving in Latin America to align with OECD guidelines, and how the OECD-brokered global tax agreement under pillar one and two could affect the region.

Click here to read all the chapters from ITR's Latin America Special Focus.

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