Colombia vs Industria Nacional de Gaseosas S.A. – INDEGA, April 2024, Counsil of State, Case No. 25000-23-37-000-2014-00372-01 (26674)

Posted on | By Courts of Colombia
Category: Benchmark, Range and Median, Services and Fees, Transfer Pricing Methods | Tag: , , , , , , , ,
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INDEGA filed a tax return for FY2011 in which it concluded that its related party transactions had been conducted at arm’s length. Transfer prices had been determined using a TNMM with the operating margin over operating costs and expenses (ROTC) as the profit level indicator (PLI).

Following an audit, the Colombian tax authorities issued a notice of additional taxable income. The notice was based on an assessment, where they had used return on capital employed (ROCE) instead of ROTC as the PLI.

An appeal was filed with the Administrative Court, which later ruled in favour of INDEGA. The tax authorities then appealed to the Council of State.

Judgment of the Court

The Counsel of State upheld the decision of the Administrative Court and dismissed the tax authorities’ appeal.

Excerpt in English

“The adjustments that may be made in the context of the application of the transfer pricing regime do not entail disregarding the accounting reality of the applicant as the tested party, since the adjustment does not modify its accounting, but is rather the result of an exercise of a numerical and conceptual nature, carried out in order to establish whether the economic reality of the tested party’s transactions with its related parties was or was not in line with the conditions that could have been found by non-related parties when carrying out the transactions analysed.

The foregoing leads the Chamber to conclude that, in the specific case, both the conditions that gave rise to the adjustment made by the plaintiff and its reasonableness are fully demonstrated and justified, insofar as such adjustment allowed to obtain better levels of comparability between the conditions of the transactions carried out by Indega S.A. with its related parties and the comparable companies, as it helped to overcome a regulatory difference that distorted the comparative exercise.

It must then be considered sufficiently demonstrated that the plaintiff adjusted its operations with related companies to the transfer pricing regime, according to the analysis presented based on the method of transactional profit margins (TU) and the profitability indicator of operating margin on operating costs and expenses (ROTC), initially proposed, as the adjustment proposed to support such conclusion was found to be reasonable. It should be added that the DIAN did not contradict the claimant’s assertion that Indega S.A. also complied with the arm’s length principle, even using the ROCE indicator proposed by the DIAN in the contested act.

In view of the foregoing, the charge raised by the defendant in its appeal does not succeed, and the Chamber will therefore uphold the judgment under appeal, without addressing the other grounds for annulment raised in the application.”

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