Colombia vs Needish Colombia S.A.S., June 2023, Administrative Court, Case No. 25000-23-37-000-2020-00319-00

Posted on | By Courts of Colombia
Category: Burden of Proof, Disallowed Deduction, Services and Fees, Transfer Pricing Documentation | Tag: , , , , , , ,
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Needish Colombia S.A.S. was engaged in providing e commerce related services, including design, research, consultancy, data processing, professional and technical advice in electronic commerce (B2B, B2C and B2E), development and maintenance of IT systems and web portals, management of databases, and other services intended to assist in the operation or management of a commercial or industrial business. In FY 2015, it had deducted payments to related parties abroad for administrative or management type services, including amounts linked to services from Needish Limitada and a payment to Groupon Inc.

Following an audit the tax authority issued an assessments. The tax authority considered that the costs were not sufficiently supported and duplicated local functions. It treated the Groupon Inc. payment as not deductible because no withholding tax was applied, and the court record also notes that the tax authority raised an arm’s length compliance point in relation to that payment.

Needish Colombia S.A.S. sought annulment of the review assessments and the reconsideration decisions and restoration of its reported tax position, and sought removal of the inaccuracy penalties. It argued, among other points, that the Needish Limitada services were effectively provided and not duplicated, that the tax authority could not require withholding for the Groupon Inc. payment because the services were provided from abroad and the transaction was under the transfer pricing regime.

Judgment

The Administrative Court denied Needish claims. It held that the analysis of duplication had been addressed in the administrative stage and concluded, based on the functions described for local roles and the evidence assessed, that the services under the Needish Limitada contract corresponded to functions that were also carried out by the company’s employees, so it accepted that duplication existed. It also found that no quantifiable benefit for the taxpayer was shown that justified the expense. For the Groupon Inc. payment, it held that because no withholding tax was applied, the deduction was not admissible, and it stated that the fact the service was provided from abroad or that the transaction was subject to the transfer pricing regime did not make the withholding requirement inapplicable. It rejected the “Other SGA” amount argument due to lack of supporting evidence and upheld the inaccuracy penalty, finding no difference in criteria because improper deductions were taken.

 
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Supplemental Guidance

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