The obligations for transfer pricing documentation began to proliferate in Latin America when, as a result of the North American free trade agreement, Mexico included the transfer pricing system in its legislation. Likewise, other Latin American countries such as Argentina and Venezuela began to include in their legislations similar transfer pricing documentation obligations in the late nineties.
Mexico introduced its transfer pricing obligations in 1996 through a tax reform. This regulatory framework was consistent with the OECD Guidelines on transfer pricing applicable to multinational enterprises and tax administrations in force at that time. With respect to transfer pricing documentation, the Mexican taxpayers had to prepare a transfer pricing study, as well as annually file a transfer pricing information return. In addition, they had to submit a Tax Report certifying not only the taxpayer’s compliance with the transfer pricing obligations, but also with the rest of their tax obligations.
In Argentina, the documentation obligations were established through general resolution 1122 and its updates. In this sense, taxpayers carrying out transactions with related parties in Argentina must file for the first semester and the entire fiscal period (complementary), transfer pricing information returns in forms F742 (Biannual Information Return) and F743 (Annual Information Return), respectively. Together with the latter one, the taxpayer must submit a transfer pricing report or study and its audited financial statements.
In Venezuela’s case, the transfer pricing system is established through the Income Tax Law (ITL) reform of 1999, which included methods for import and export transactions, with predetermined margins for some of the commonly called traditional transaction methods and protection systems (safe harbors), for some transactions such as export and interest. However, this first step in the adoption of transfer pricing obligations did not include specific documentation obligations. In spite of the foregoing, the common practice by taxpayers in order to show compliance with the arm´s length principle was the preparation of the transfer pricing study based on criteria used by other jurisdictions such as the United States of America (U.S.A.), Mexico and Argentina. Later on, through the partial reform of the ITL, the transfer pricing system was modified to make it more consistent with the OECD Guidelines. Additionally, the obligation to file an annual information return and transfer pricing documentation was established. In practical terms it has been consistent with the practice commonly adopted at the international level of preparing a transfer pricing study and likewise providing the support information and documentation established in the law and not included in the study, as may be requested by the Tax Administration.
Study
- Name, corporate name, tax domicile and residence, of the related parties with whom transactions are carried out, as well as the documentation showing the direct and indirect participation between the related parties;
- Information relative to the functions or activities, assets used and risks assumed by the taxpayer for each type of transaction;
- Information and documentation on transactions with related parties and their amounts, for every related party and for every type of transaction;
- Method applied, including the information and documentation on transactions or comparable enterprises for every type of transaction.
- Activities and functions carried out;
- Risks assumed and assets used;
- Detail of elements, documentation, circumstances and facts for the analysis;
- Detail and quantification of the transactions;
- Identification of individuals abroad with whom transactions were carried out;
- Method used, with indication of reasons, bases for considering it the best method;
- Identification of selected comparables;
- Identification of sources of information;
- Detail of selected comparables that were eliminated with indication of reasons that were taken into consideration;
- Detail, quantification and methodology used for making necessary adjustments on selected comparables;
- Determination of the mean and interquartile range;
- Transcription of the status of results of comparable issues corresponding to commercial periods that may be necessary for the comparability analysis, with indication of the source for obtaining said information;
- Description of the business activity and characteristics of the business of the comparable companies;
- Conclusions which would have been reached.
- List of fixed assets, including depreciation methods, historical costs and financial and accounting implication of their disincorporation, as well as support documents on their acquisition;
- Risks inherent in the activity;
- Organizational scheme of the company and/or group, functional information of the departments and/or divisions, strategic associations and distribution channels;
- Surnames and names, denomination and/or corporate name, tax information registration number, tax domicile and country of residence of the taxpayer, as well as information on the directly or indirectly related parties, the documentation regarding the nature of the aforementioned relationship; type of business, main customers and shares in other businesses;
- Information on transactions carried out directly or indirectly with related parties, date, amount and currency used;
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Financial statements; - Contracts, agreements or conventions concluded between the taxpayer and related parties abroad;
- Information related to business strategies; Volume of operations, credit policies, forms of payment, quality processes, national and international certifications of products or services, exclusivity contracts, guarantees, among others;
- States of costs of production and cost of goods and/or services sold, if applicable;
- Method (s) used for the determination of transfer pricing, with an indication of the criterion and objective elements considered to determine that the method used is the most appropriate for the operation or enterprise;
- Information on the operations of the companies that can be compared, with an indication of the concepts and amounts compared, in order to eliminate the overestimation or underestimation of the items and accounts that may affect them;
- Specific information on whether the foreign-related parties are subject to transfer pricing, or if they are settling any tax disputes in respect of transfer prices to the competent authorities or tribunals. Also, the information on the status of the process of the dispute. In the case of resolutions issued by the competent authorities or that there is a firm sentence issued by the relevant courts, a copy of the relevant decisions shall be retained;
- Information related to the monthly control of the entries, outputs and stock of goods, leaving evidence of the method used for the control of inventories and valuation;
- Information related to functional analysis and calculation of transfer pricing; or
- Any other information considered relevant or that may be required by the tax administration.
Information and documentary support
- Not specified in the law.
- With respect to the resident subject in the country: identification data and his functions or activities, assets used, risks assumed, and organizational structure of the business;
- In respect of related parties abroad and the unrelated subjects located in countries of low or null imposition (SNVPBIF in Spanish): Surname and names, denomination or social name, tax identification code, fiscal domicile and country of residence and the documentation of which the type of the aforementioned linkage arises (if the latter exists);
- Information on transactions between the taxpayer and related parties abroad and subjects located in low-taxation countries : The amount and the currency used;
- In the case of multinational companies or economic groups;
- Updated conformation of the business group, with a detail of the role played by each of the companies;
- Partners or members of each of the companies, indicating the percentage of their participation in the social capital;
- Place of residence of each of the members and members of the companies of the group, with the exception of the part of the capital placed through the public offering through stock exchanges and securities markets;
- Surname and names of the president or who has occupied equivalent position in the last three (3) years within the economic group, indicating the place of his residence;
- Place of establishment of each of the companies;
- Description of the social object of each of them;
- Description of the activities specifically developed by such companies;
- List of companies that are members of the group authorized to trade in stock exchanges and securities markets;
- Contracts on transfer of shares, increases or decreases in capital, rescue of shares, merger and other relevant corporate changes;
- Adjustments in transfer pricing to the group’s companies in any of the last three (3) years, in turn, they shall inform if any of them are under control for transfer pricing to the expiration dates of the period to present, respectively: the semi-annual return, the annual supplementary return and the annual determinative return of the income tax;
- Financial statements;
- Contracts concluded with related parties;
- Information on the taxpayer’s financial situation;
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Information on the trade strategies adopted by the taxpayer; - Cost structure of the taxpayer and/or the related parties abroad;
- Methods used by the taxpayer for the determination of transfer pricing, with indication of the criterion and objective elements considered to determine that the method used is the most appropriate for the transaction or company, as well as the causes for which the remaining calculation methodologies have been discarded;
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Information on transactions or companies that are compared, with an indication of the concepts and amounts adjusted in order to eliminate the differences; - Work papers containing the procedures for determining the range and the value resulting from the application of the calculation methodology;
- Information on whether the subjects located abroad are reached by transfer pricing regimes, and where appropriate, whether they are settling any dispute of a fiscal nature on the matter before the authorities or competent courts.
Source: Adapted from ITL of Mexico, Venezuela and Resolution 1122 from Argentina.
The way Mexico, Argentina and Venezuela initially undertook their documentation obligations served as reference for the rest of the Latin American countries that would adopt these obligations in the new millennium. Now with the new challenges posed by the adoption of the BEPS (Base Erosion and Profit Shifting), specifically its action 13, Mexico as well as Argentina have taken their first steps to incorporate the transfer pricing documentation approach at three levels (Country-by-Country Report, Master File and Local File). We shall see whether these two countries, along with Venezuela may continue to be an important reference for the other Latin American countries in this new stage of the international tax system reform.
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