Colombia – Transfer Pricing (2025)

Legal framework and scope

Colombia’s transfer pricing regime is codified primarily in the Tax Code through Articles 260-1 to 260-11 and is further developed by Decree 1625 of 2016. The Arm’s Length Principle is explicitly referenced in Article 260-2 of the Tax Code. The rules define who falls within the regime by reference to economic connection or control between parties. Article 260-1 sets out the conditions of subordination and control, including direct or indirect ownership of more than 50% of capital, voting rights sufficient for the requisite majority, dominant influence over governance, the right to receive 50% of profits, relationships between branches and head offices, agencies and their principals, permanent establishments and the enterprise for which they act, and additional cases of economic connection such as transactions between two subsidiaries of the same parent. Decree 1625 clarifies the >50% ownership threshold for defining connection.

Arm’s length principle and the role of the OECD Guidelines

The Arm’s Length Principle is entrenched in Article 260-2 of the Tax Code. While domestic law does not explicitly incorporate the OECD Transfer Pricing Guidelines by reference, the Constitutional Court in Ruling C-690 of 12 August 2003 stated that the OECD Guidelines are a valuable interpretative tool in the technical area of transfer pricing. Therefore, tax authorities may use the OECD Guidelines as a technical interpretative aid, consistent with their administrative powers.

Definition of related parties

Article 260-1 of the Tax Code provides Colombia’s definition of related parties for transfer pricing purposes. It encompasses entities that are subordinate or controlled, with detailed criteria: ownership of more than 50% of capital directly or indirectly, rights to issue the votes needed for the minimum majority at shareholders’ meetings, exercise of dominant influence over governing bodies, or the right to perceive 50% of the subordinate company’s profits. It also includes branches, agencies and permanent establishments in relation to their parent entities, transactions between two subsidiaries of the same parent, participation in management or control, ownership links by marriage or kinship up to the second degree, and transactions executed through unrelated third parties. Decree 1625 specifies that connection is deemed to exist where transactions occur between subsidiaries that directly or indirectly belong more than 50% to the same person or entity.

Methods and selection criteria

Colombian law recognizes the five classic transfer pricing methods consistent with the OECD Guidelines: the Comparable Uncontrolled Price (CUP) method, the Resale Price method, the Cost Plus method, the Transactional Net Margin Method (TNMM) and the Profit Split method, as provided in Article 260-3 of the Tax Code. Colombia does not impose a mandatory hierarchy of methods; instead, the method deemed “most appropriate” must be selected based on the following criteria specified in Article 260-3: a) facts and circumstances of the controlled transaction, supported by a detailed functional analysis; b) availability of reliable information, particularly on uncontrolled transactions; c) degree of comparability between controlled and uncontrolled transactions; and d) reliability of comparability adjustments required to eliminate material differences. For commodity transactions, Article 260-3 implements BEPS Action 10 results and establishes CUP as the preferred method for determining an arm’s length price, reserving other methods for exceptional, well-supported cases.

Comparability and ranges

Colombian rules follow the OECD’s Chapter III comparability framework. Article 260-4 defines comparability as the absence of material differences that may affect the conditions analysed under the chosen transfer pricing method, or alternatively that such differences can be eliminated by sufficiently reliable adjustments. The law lists five comparability factors: characteristics of the transactions (with specific elements for financing transactions, services, transfers or licenses of tangible and intangible assets and share sales); functions performed, assets used and risks assumed by the parties; contractual terms vis-à-vis the economic reality; economic or market circumstances (geography, market size, level of competition, demand and supply conditions, production and transport costs, timing); and business strategies such as market penetration and expansion. In particular, for financing transactions Article 260-4(a) emphasises principal, term, credit rating, guarantees, borrower creditworthiness and interest rate, and states that interest payments are not deductible unless these comparability elements are met; when terms fall outside market practice, the transaction may be recharacterized as a capital contribution or dividend.

Decree 1625 (Num.4 of Art. 1.2.2.2.1.5) requires comparables documentation to identify each selected comparable, explain the selection methodology, cite sources and consultation dates, and list rejected comparables with reasons. There is no statutory preference for domestic comparables over foreign ones, and the use of secret comparables is not permitted. Article 260-3 allows the construction of an arm’s length range when two or more comparable transactions are identified; statistical measures, notably the interquartile range, may be used when appropriate. Comparability adjustments are explicitly permitted and required where material differences can be reliably adjusted under Article 260-4.

Documentation and reporting

Colombia implemented the three-tiered documentation approach under BEPS Action 13. The domestic obligations to prepare a Master File, Local File and Country-by-Country Report are set out in Articles 260-5 and 260-9 of the Tax Code and in Decree 1625 (Articles 1.2.2.2.1.1 to 1.2.2.2.3.7) which detail contents and procedural aspects. The Local File must include, at a minimum, an executive summary, functional analysis, industry analysis and economic analysis. Submission deadlines are set annually by the government. The Local File must be submitted in Spanish while the Master File may be submitted in English. The Country-by-Country Report is required where the ultimate parent entity is resident in Colombia, the MNE group has subsidiaries, branches or PEs abroad, prepares consolidated financial statements and has consolidated revenues of at least 81,000,000 UVT in the preceding year; Colombia provides notification mechanisms to enforce CbC compliance and penalties apply for failure to file, incorrect filing or late filing. The CbCR must be filed within 12 months after the last day of the MNE group’s fiscal year.

Regarding thresholds: Article 260-5 states taxpayers are not required to prepare transfer pricing documentation unless either (a) gross equity on the last day of the fiscal year equals at least 100,000 UVT or (b) gross revenues in the respective year equal at least 61,000 UVT, and transactions are carried out with related parties. Decree 1625 adds transaction-level thresholds for preparing and submitting Local and Master Files: when annual cumulative related-party transactions exceed 45,000 UVT, the Local and Master Files must be prepared and submitted; if transactions involve parties in non-cooperative or low-tax jurisdictions, the threshold is 10,000 UVT. The CbCR threshold is 81,000,000 UVT.

The tax framework includes specific transfer pricing returns or annexes to tax returns and provides for penalties linked to documentation non-compliance.

Safe harbours, exemptions and materiality

No general safe harbours or simplification measures for specific industries or taxpayer types are identified in the country profile. Therefore, no domestic guidance on safe harbours is provided in the profile.

APAs and MAP; procedures and timing

Under Article 260-10 of the Tax Code and Decree 1625 (Articles 1.2.2.4.1 to 1.2.2.4.10), DIAN has authority to conclude unilateral, bilateral and multilateral APAs. The maximum covered period for APAs is five years; APAs may cover the taxable year in which the agreement is concluded, the prior year (rollback) and up to three following years. Guidance on the APA programme is publicly available on DIAN’s website.

For MAP, Article 869-3 ET introduced in December 2019 provides that taxpayers may request MAP in writing to DIAN, which is the competent authority. MAP rules and procedural governance were issued through Resolution No. 000085 of 21 August 2020 (which rectified Resolution No. 000053 of 2019). MAP agreements have the same legal nature and effect as judicial decisions and can be implemented despite domestic time limits; suspension of tax collection may be allowed from the filing of a MAP request.

Penalties and other considerations

Article 260-11 of the Tax Code establishes a progressive penalty regime for transfer pricing matters, covering late filings, errors, omissions and failures to file; the profile does not set out specific penalty amounts in the summary. Colombia does not provide for unilateral downward corresponding adjustments in the absence of a MAP, according to the profile. Year-end fiscal adjustments are permitted; taxpayers may make year-end adjustments to comply with the arm’s length principle and must report the amount of such adjustments in the transfer pricing return. The profile indicates that secondary adjustments are not provided for in the domestic framework, aside from recharacterization of non-market financing terms as capital contributions or dividends where appropriate under the law.

Attribution of profits to permanent establishments

Colombia applies the Authorized OECD Approach (AOA) in line with the 2010 Report on the Attribution of Profits to Permanent Establishments. Article 20-2 of the Tax Code and Decree 1625 (Articles 1.2.1.14.1 to 1.2.1.14.10) state that profits and capital gains attributable to a permanent establishment are those which the permanent establishment might be expected to make if it were a distinct and separate enterprise, taking into account the functions performed, assets used, personnel involved and risks assumed. Regarding treaties, Colombia has eleven tax treaties that broadly follow Article 7 of the OECD Model as it read before 2010, and seven treaties that follow the post-2010 text. Decision 578 of 2004 of the Andean Community applies among Member States and follows a separate entity approach distinct from Article 7 of the OECD Model.

Specific topics: commodities, intangibles, intra-group services, financing and CCAs

Commodities: Article 260-3 implements the BEPS Action 10 approach for commodity transactions. The CUP method is the most appropriate method to determine the arm’s length price for commodities; “commodity” covers physical products for which a quoted price is used by independent parties to set prices in uncontrolled transactions, and “quoted price” includes prices from recognized commodity exchanges, transparent price reporting agencies or governmental price-setting indexes. Where necessary, reasonable comparability adjustments must be made. The pricing date or period is a particularly relevant factor and must be evidenced by reliable documents and registered according to government procedures; if the taxpayer fails to provide reliable evidence, the Tax Administration may deem the pricing date using available evidence such as bills of lading.

Intangibles: Domestic legislation does not contain detailed, dedicated guidance on intangibles aligned to Chapter VI of the OECD Guidelines; therefore general transfer pricing rules (Articles 260-1 to 260-11) apply, and the OECD Guidelines may be used as interpretative guidance. Decree 1625 adopts the BEPS Action 8 definition of intangible and requires Local File content to include succinct descriptions of main contractual terms, geography of related parties holding intangibles, description of conduct in relation to intangibles, group strategy on development, enhancement, maintenance, protection and use of intangibles, and disclosure of compensation paid in transfers of intangibles. Outside transfer pricing law, Article 120 of the Tax Code restricts deduction of royalties paid to related parties abroad or to free-trade zones when associated with exploitation of intangibles formed domestically, and disallows deduction of royalties tied to acquisition of finished products.

Hard-to-Value Intangibles (HTVI): no specific domestic guidance on HTVI is provided in the country profile.

Intra-group services: Article 260-3 obliges taxpayers to demonstrate actual provision of services and that amounts paid or received comply with the arm’s length principle. Decree 1625 Article 1.2.2.2.4.2 requires the Local File to detail how the service provides an economic benefit to the recipient, to specify whether compensation complies with the ALP, to demonstrate that no additional cost was charged if service remuneration is embedded in other prices, and to document effective use where services are billed subsequently.

Low value-adding services: Colombia does not provide for a simplified low value-adding services approach consistent with Chapter VII of the OECD Guidelines.

Financial transactions: Colombia has not adopted a specific transfer pricing chapter akin to Chapter X of the OECD Guidelines, but Article 260-4(a) and Decree 1625 Article 1.2.2.1.3 address comparability elements for financing. Article 118-1 of the Tax Code contains thin capitalization rules limiting interest deductibility on related-party debt: interest on related-party debt is deductible only to the extent that the average total amount of such debt during the taxable year does not exceed two times the taxpayer’s net equity at 31 December of the immediately preceding year; interest exceeding that limit is non-deductible.

Cost Contribution Arrangements (CCAs): CCAs are permitted subject to the arm’s length principle. Article 260-3 and Decree 1625 Article 1.2.2.2.4.3 require contributions by each participant to be consistent with what an independent party would accept, considering effective benefits and the real possibility to exploit or use assigned rights. The domestic rules do not mirror Chapter VIII verbatim but set substance and proportionality requirements for CCAs.

Other administrative aspects

Colombia provides APAs and MAP to prevent and resolve transfer pricing disputes. The consideration of a simplified and streamlined approach for baseline marketing and distribution activities is under review. Colombia respects the outcome of the simplified and streamlined approach applied by another covered jurisdiction consistent with the Inclusive Framework political commitment.

Conclusion

Colombia’s transfer pricing regime is well developed, grounded in the Tax Code and Decree 1625, and substantially aligned with the OECD/BEPS framework: it recognizes the five OECD methods, adopts BEPS-derived commodity rules and the three-tiered documentation standard, and provides for APAs and MAP. The Constitutional Court decision validating the use of the OECD Guidelines as an interpretative tool provides further practical alignment. Areas where domestic guidance is either limited or absent in the profile include HTVI and safe harbours, which makes interpretation against the OECD Guidelines particularly relevant in those cases.

References

More information and the country profile can be found on the OECD website: https://www.oecd.org/en/topics/sub-issues/transfer-pricing/transfer-pricing-country-profiles.html