Article 260-8 of the Colombian Tax Statute established which taxpayers were obliged to file Transfer pricing documentation. The rule established two requirements for income taxpayers to be obliged to file DIIPT in the year 2010, the first is to have obtained a gross equity on 31 December of the taxable period of 100.100,000 UVT ($2,455,500,000) or gross income of 61,000 UVT ($1,497,855,000), and the second is to have carried out operations with economic associates or related parties domiciled abroad. In the present case, a Colombian branch of Petroleum Exploration International S.A presented a total gross income of $18,496,716,000 in the income tax return for 2010, and therefore complied with the first requirement. As for the second requirement, it is noted that according to the certificate of existence and legal representation of Colombian branch, it is a branch of the company Petroleum Exploration International S.A. whose principal place of business is Panama. (…) In the accounting inspection report of 2 April 2013, the company’s accountant stated that Ecopetrol paid directly for the oil services provided by the plaintiff to its parent company, which then made the payment to Forum Absolute Return Fund LTD abroad. Consequently, it is evident that there were transactions between the branch and its related company abroad, when the parent company was paid for services provided by the company in Colombia. The aforementioned evidence shows that the company that owned the drill was Petroleum Exploration Internacional S.A. of Panama, which, as recorded in the accounts, was leased by the Colombian branch to provide services in Colombia, but part of the payment went to the company Forum Absolute Return Fund LTD. Hence, there were transactions between the branch and its parent company during the taxable period 2010, so it was obliged to present transfer pricing documentation in the aforementioned period. (…) It is clarified that the acts being challenged do not disregard the principle of the prevalence of substantive law over formal law, as it was not appropriate to declare the drill as an asset of the company, since, as stated by the plaintiff in the appeal, the asset was acquired by its parent company, and therefore the branch could not depreciate an asset that did not belong to it. Moreover, the date of importation of the drill does not affect the fact that transactions had taken place between the branch and its parent company in 2010. (…) According to the above, the branch was obliged to file transfer pricing documentation in 2010 as it exceeded the gross income ceiling, and had carried out operations with its parent company abroad. FORMAL SOURCE: LAW 1437 OF 2011 (CPACA) – ARTICLE 188 / LAW 1564 OF 2012 (GENERAL CODE OF THE PROCESS) – ARTICLE 365 NUMERAL 8 Click here for English translation Click here for other translation ...

At issue was lease of real estate which was owned by the taxpayer and his wife. He was the managing director of Medinvest and, subsequently, of Long Wave, which were involved in the legal relations in question. He was active in connection with the lease of the properties in question, as managing director of Medinvest, he concluded certain sublease agreements with the final subtenants, and on 1 November 2005, as managing director of Medinvest, he concluded a sublease agreement with Long Wave. Judgement of the Court The Czech Supreme Administrative Court explained that “[t]he purpose of the provision in question is to prevent unwanted shifting of a part of the income tax base between individual income taxpayers and to enable the sanctioning of abusive price speculation in business relations. This includes the so-called “profit shifting” between persons with different tax burdens, which usually occurs when such persons charge each other prices in their transactions that are lower or higher than the prices used between independent persons in normal business relations, and the result of such transactions is an increase in costs or a decrease in sales for the company with the higher tax burden and a siphoning off of part of the profits to the company with the lower or zero income tax rate.” The Court then went on to summarise that “a material difference from normal prices occurs when sales are made too cheap or purchases are too expensive, in which case such a difference must always be satisfactorily documented.” Click here for English Translation Click here for other translation ...