Transfer pricing studies
In UR Global, we deal with business consultancy and management with regard to the international taxation. We work in Spain, Mexico, Colombia, Peru, Brazil and Chile. We help you to carry out the transfer pricing studies or Master Files.
What are transfer prices and what good are they?
“Transfer pricing studies” are the analysis and value assignment to the operations between related parties. Those operations are the exchange of tangible and intangible assets and/or service provision between companies belonging to the same business group, usually between a parent and its subsidiary. Transfer pricing studies or Master Files must be presented if requested by tax administration in some countries, whereas their presentation is obligatory in other countries prior to the possible finance review.
The requirements so that the implementation and content of transfer pricing studies are mandatory vary in each country.
What transfer pricing studies do we do in UR Global?
In UR Global, we take care to conduct the transfer pricing studies in Spain, México, Colombia, Peru, Brazil, Chile and Portugal with an expert group on international taxation to monitor and with certified auditors in each country. We carry out transfer pricing studies in different sectors, such as renewable energies, engineering, cybersecurity companies, marketing agencies, industrial plants, among others.
A special feature in UR Global is that, as we present in different countries, we can carry out the study to the parent and its subsidiaries; and coordinate from Spain the transfer pricing studies of all countries where we operate.
Where do we carry out the transfer pricing studies?
Transfer pricing studies in Mexico
The obligation to conduct the transfer pricing study in Mexico is contained in the Article 76, sections XII of the Income Tax Act* regarding operations between related parties who have a mercantile society. The objective of that study is to have a support to demonstrate that such operations have been carried out according to the prices as if they were independent companies in comparable transactions. The activity of this business service will consist in applying the methodology and necessary processes that are applicable to the case, in order to validate the performance of the obligation under the terms of the current Income Tax Act.
The taxpayers engaged in business activities, whose earnings in the immediately preceding year exceed $13’000,000.00 are obliged to carry out the transfer pricing study in Mexico. Similarly, the taxpayers whose earnings derived from the provision of professional services exceed $3’000,000.00.
That Article sets out check-in deadlines from which it is mandatory to have the transfer pricing studies. It is strongly recommended to have this document, because before an hypothetical review of the intercompany operations by SAT, it is likely that the cost of invoices issued by the parent are considered as non-deductible, if they are not justified with EPT.
If you don’t have a transfer pricing study in Mexico — before a review of the intercompany operations by SAT — it is likely that the cost of invoices issued by the parent are considered as non-deductible if they are not justified with EPT, with the relevant tax impact of 30% from corporation tax on the total amount of those invoices.
Transfer pricing studies in Colombia
Those companies that at 31 December of the immediately preceding year comply with any of the two following conditions must carry out a transfer pricing study in Colombia. These companies shall be obliged to submit an information statement of transfer pricing:
- Their annual revenue must be greater than 61.000 UVT (tax value units) i.e. 2.172.027.000 Colombian pesos (about 515.000 euros) for the year 2020.
- Their gross assets must be greater than 100.000 UVT, i.e. 3.560.700.000 Colombian pesos (about 845.000 euros) for the year 2020.
In addition to the information statement, taxpayers will be obliged to present the local report, in addition to fulfilling the abovementioned requirements and complying with the following parameters in the year under review:
- The cumulative amount by individual related-party transaction must pass 45.000 UVT, 1.602.315.000 Colombian pesos (about 380.000 euros) for the year 2020.
- Have offshore transactions with a value of more than 10.000 UVT, 356.070.000 (about 85.000 euros) for the year 2020.
Finally, taxpayers that comply with the following conditions are also obliged to present a Master Report:
Taxpayers that are part of a Multinational Group. In its broadest sense: two or more related companies in different jurisdictions.
Transfer pricing studies in Peru
Peruvian taxpayers will be obliged to present:
- Informative Affidavit Local Report: Taxpayers with incomes over 2,300 UIT (Tax Units) will present the Informative Affidavit Local Report regarding transactions that generate taxable income and/or deductible costs or expenses to determine the tax.
The obligated subjects are those that: their accrued income have overcome two thousand three hundred (2300) tax units (UIT) and made transactions within the scope of application of transfer pricing rules, whose operation amount is equal to or greater than one hundred (100) tax units (UIT) and less than four hundred (400) tax units (UIT).
- Informative Affidavit Master Report: Taxpayers that are part of a group whose accrued income overcome 20,000 UIT will submit annually the Informative Affidavit Master Report, which contains the organization structure, description of business, transfer pricing policies regarding intangible, Group’s financing and their financial and tax position.
The obligated subjects are those taxpayers whose accrued income have overcome 20.000 UIT and made transactions within the scope of application of transfer pricing rules, whose operation amount is equal to or greater than four hundred (400) UIT.
- Informative Affidavit Country-by-Country: Taxpayers that are part of a multinational group will submit annually the Informative Affidavit Country-by-Country Report, which contains information related to the global income distribution, paid taxes and business activities of each of entities belonging to the multinational group that develop their activity in a specific country or territory.
Provided that the accrued income in the previous tax year concerning the affidavit — according to the consolidated financial statements developed by the multinational group’s parent — are greater than or equal to two thousand seven hundred million and 00/100 soles (S/ 2 700 000 000,00), they are obliged towards: multinational group parent domiciled in the country; or resident taxpayer that has been appointed parent-representative; or there are no agreements that enable Tax Authority to obtain that Country-by-Country Report from other authorities.
If there is no transfer pricing study in Peru — if prices paid by the taxpayer are not valued according to the arm’s length principle — Tax Authority has the power to adjust the agreed value by parties when this Authority determines a lower tax in the country; a tax that would correspond by the application of transfer pricing rules.
On the other hand, under Article 177, paragraph 27 of the LIR, if documentation and information referred to in the Income Tax Act are not displayed or presented; or if their Spanish translation does not support the Informative Affidavit Local Report, Master Report and/or Country-by-Country Report, a fine of 0.6% of net income will be imposed (no less than 10% of UIT, no more than 25 UIT).
Note: 1 UIT is equivalent to 4300 soles in 2020.
Transfer pricing studies in Brazil
Companies must perform a transfer pricing study in Brazil whenever there are transactions with economic partners domiciled abroad, and with whom there are corporate relationship and/or economic dependence.
The law that protects transfer pricing in Brazil is the law 9.430/96 (Articles 18 to 24). It’s important to emphasize that the legislation core is to force, through foreseen methodologies, the operations carried out between Brazilian companies and companies regarded as “linked” to them in order to observe prices and conditions consistent with the adopted in the negotiations between unrelated third parties in the international market.
As a rule, the law considers “related company” that one residing abroad, which has a corporate relationship with the Brazilian company, either directly (as partner, parent company, etc.) or indirectly (as management, common management, etc.). Companies that have economic dependence with the Brazilian company are also considered related companies.
In addition to the facts described above (business relationship or economic dependence), law also provides for compliance with the control rules in case of business relationships with companies located in countries where there is no tax income, or tax the income favorably. This means, the tax below the rate of 20% (tax havens).
The law determines control methodologies, for which the implementation of transfer pricing rules must be carried out taking into account all products and/or services exported during the year. Currently, Brazilian law (using the precepts discussed and undertaken by OECD) chooses three methodologies that can be adopted:
- CAP – Methodology based on a fixed profit margin (15%) on the production cost in the country. It is the most adopted by export companies because it does not depend on third-party information.
- PVEX – Methodology for the direct comparison between the actually practiced price and price adopted in transactions with unrelated companies. The bases of comparison depend on transactions carried out by the Brazilian taxpayer with unrelated customers, or the related company abroad with other unrelated suppliers or even unrelated third parties each other.
- PVA/PVV – Methodology that adopts as baseline the sales price in the international market (wholesale and retail, depending on the condition).
Based on this system, the Brazilian taxpayer must do a survey detailing the market practices adopted in the customer/purchaser country in order to obtain data on the business conditions and prices for the purposes of comparing with the amount charged in export.
The transfer pricing studies will analyze all possibilities and will recommend one of the methodologies, specifying the possible need to correct the tax statements.
The transfer pricing studies carried out in a business consultancy by our experts in international taxation will serve as legal basis so that the company demonstrates the proper monitoring of law concerning transfer pricing and serves as defense for a possible questioning.
Transfer pricing studies in Spain
The conduct of transfer pricing studies or Master File in Spain is required to the companies that have carried out related transactions, whose amount overcomes 250.000€ valued at market price in the tax period, with the same person and related entity.
Transfer pricing studies in Chile
There are two different obligations, the annual affidavit on transfer pricing and the obligation to perform the transfer pricing studies:
- Annual affidavit on transfer pricing (DJ 1907):
This affidavit must be submitted until 30 June annually. Where necessary, an extension can be requested of up to 3 months for the Chilean Internal Revenue Service (SII).
The following taxpayers must submit this affidavit regarding the transactions as outlined:
- Taxpayers that at 31 December of the relevant year belong to the segments of medium-sized companies or big companies, who in that year have carried out transactions with related parties without domicile or residence in Chile, according to the rules set out in the Article 41 E of the Income Tax Act.
- Taxpayers who are not included in the segments indicated in the previous letter a) — during the period to report — who have done transactions with related parties without domicile or residence in Chile in amounts exceeding $ 500.000.000 (a half billion Chilean pesos) or its equivalent according to the exchange rate between national currency and foreign currency, in which these transactions were carried out as at 31 December of the corresponding year, in accordance with a publication made by the Central Bank of Chile.
- Taxpayers not classified in previous segments that have transactions with domiciled or resident persons in a territory or jurisdiction with preferential tax regime, referred to in the Article 41 H of the Income Tax Act (see attachment).
- Transfer pricing studies:
As established by SII in the published instructions, the threshold to determine if a transfer pricing study is required or not is CLP 200.000.000. Therefore, for all transactions with related parties, a transfer pricing study will only be required if the transaction value is equal to or greater than CLP 200.000.000.
Why use UR Global to carry out your transfer pricing studies in Spain, Mexico, Colombia, Peru, Portugal, Brazil and Chile?
By hiring our experts in international taxation, we develop the UR Global company consultancy to carry out a transfer pricing study. The company will have several important factors.
Knowledge acquired by the management of more than 400 subsidiaries of small and medium-sized companies in Spain, Mexico, Chile, Peru, Colombia, Brazil and Portugal and the conduct of about 200 transfer pricing studies annually.
Such knowledge in international taxation allows us to provide our clients the safety and tranquility of their transactions and workflows and their compliance with local regulations.
In a situation where local and international tax authorities review in more detail these transactions in order to avoid abuse, it is important to have an office such as UR Global, specialists in international taxation, who are responsible for conducting the transfer pricing study, as well as its presentation and defense before tax authorities, if necessary.
We will manage from Spain with our work team that is expert in international taxation, the conduct of transfer pricing studies, to which the company is obliged. This will depend on the operations that there are in each of its subsidiaries. Therefore, we will review their activities to determine if they are obliged or not, by providing our advice and execution of transfer pricing studies in each country.
How is the process to carry out a transfer pricing study?
After examining the information received by the Client, our business management services concerning the transfer pricing studies will finish with the presentation of a document that will be signed by an auditor, where all movements between related parties are collected.
Transfer pricing studies in each country should be presented before the authorities or saved, depending on the regulation in each country.
Frequently asked questions
The obligation to have a transfer pricing study will depend on the country’s local authorities.
The time required to carry out a transfer pricing study is about 20 working days since we received the required information.
From our experience, the tax authority gives you a very short time to carry out and present the transfer pricing study on time. In that case, the company faces a fine for failing to submit it.
Our recommendation is always to have the EPT done, in case of revision by the tax authority.
Transfer pricing is an instrument created to combat fraud and evasion that allows greater transparency in purchase transactions or transfer of goods and services between economically related companies.
Professionals in the field carry out the transfer pricing study. They compare transactions using different methods allowed by the LISR to determine if transactions are agreed at fair value.