Adoption of the CUP Method for Commodity Transactions in new Colombian Tax Law

The recent tax reform -issued by Law 1819 of December 29/2016- introduced some changes in international tax law and transfer pricing rules. Relevant changes were adopted to introduce CbC report, adopt CFC legislation and define a legal framework regarding preferential tax regimes and beneficial owner to control base erosion and prevent tax deferral (see BEPS Action 5).

One of the most relevant changes has to do with commodity transactions, which is the topic developed in this paper. According to the amended article 260-3.1 of the Tax Statue, from 2017 the CUP method must be used to evaluate the accomplishment of the arm’s length principle -ALP- in controlled commodity transactions. In this way, the Colombian law adopts -almost literally- the recommendations provided in the BEPS Final Report of Actions 8-10, in particular the proposed articles 2.16A to 2-16E which are to be included in the OECD Transfer Pricing Guidelines. The definitions for “commodity” and “quoted price”, as prescribed in the amended law, are taken from paragraph 2-16A. As in the Guidelines, the commodity definition included in the law is vague and imprecise, and omits essential characteristics of this type of products, such as physical uniformity or standardization.

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Alejandro Delgado-Perea is a TPA Global Alliance partner.

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