A. Evolution of legislations that regulate transfer pricing in the Latin American and Caribbean
6. Methods 44
To determine whether the conditions imposed on commercial or financial transactions between related companies reflect those that are required for complying with the arm’s length principle it is necessary to determine the prices or margins of comparable goods, services or companies, respectively.
The method to be applied will be selected according to the characteristics of the transaction, the information originating therefrom and its respective functional analysis:
Table III-‐20 Methods established
Countries Methods AR G B R A C H I C O L C R C E C U E S A G U A H O N M E X P A N P E R D O M U R U V E N
Comparable Uncontrolled Price X X X X X X X X X X X X X Resale Price X X X X X X X X X X X X X Cost Plus X X X X X X X X X X X X X Profit Split X X X X X X X X X X X X Residual Profit Split X X X X X X X X X Transactional Net Margin X X X X X X X X X X X X Others X1/ X2/ X3/ X4/ X5/ X6/ X7/ X8
/ X9/ 1 Quotation value of commodities on the date of shipment (sixth paragraph of the Argentine rule regarding transfer pricing).
2 Price Quoted in Goods and Futures Exchanges. In Law No. 12.715 of September 2012, which becomes effective on January 1st, 2013.
3 Other reasonable methods when it is not possible to apply any of the above. 4 If they are not specified in the rule, the OECD guidelines are applied.
5 Export and import with known prices with or without international intermediary.
6 Determination of average market price (Article 199-‐B). Likewise, even though the rule does not provide for the use of the OECD methods, the taxpayer may use them if the inapplicability of the method established in Article 199-‐B is proven. 7 Assessment method for imports or exports of goods.
8 According to the modification made on July 18 and 23, 2012, Legislative Decrees N° 1112, 1120 and 1124, which becomes effective on January 1st, 2013, the sixth Argentine method has been included.
9 Public and well known international price through transparent markets, stock exchanges or the like. Source: Tax administrations consulted.
Most of the countries establishing other methods have included the method shown in the sixth paragraph of the Argentine regulations. This method which will be described in subsection B of this paragraph, has been included in the regulations of Brazil, Ecuador, Guatemala, Honduras, Uruguay and Peru; this latter one in accordance with the reform carried out on July 18 and 23, 2012. On its part, Brazil included it recently in the amendment made to Law No. 12.715, published on September 18, 2012. Likewise, the Dominican Republic included it in the recent amendment to its legislation through Law No. 253-‐12.
With respect to the selection of methods, it is possible that the legislation may establish some type of hierarchy regarding their use or that the “best method rule” be applied.
The table below shows the criterion applied by each country regarding the use or selection of the methods:
Table III-‐21 Hierarchy or preference of the methods
Criterion applied Countries
Best method rule Argentina, ChilePanama, Peru, Uruguay, Venezuela. 1/, Colombia, Costa Rica, Honduras, Hierarchy or preference of
methods
Brazil, Ecuador, Guatemala, Mexico, Dominican Republic.
No hierarchy or priority
criterion is established El Salvador.
1/ According to the Modification in Law 20630 of September 27, 2012, which becomes effective on January 1st, 2013.
Source: Tax administrations consulted.
In cases wherein the legislation includes the hierarchy or priority of methods, criteria are established for determining, first of all, the method under which the transactions should be evaluated. If such method cannot be applied due to well-‐grounded reasons, one should continue to the following method in hierarchy or priority and so on, until arriving at the application of a method.
Some tax administrations have available statistics on the level of use of the different methods. Such situation on many occasions, respond to the type of industry being developed in the country or the economic situation it is undergoing.
One may observe below in absolute and percentage terms, the number of tax administrations that have statistics on the use of each of the methods by the taxpayers:
Graph III-‐6 Statistical proportions on the use of methods in the tax administrations
Source: Working team carrying out this Study.
5 33% 4 27% 6 40%
Do have available stapspcs on the methods Do not have available stapspcs on the methods Do not have informapon on the issue
The tax administrations of Argentina, Colombia, Mexico, Peru, Uruguay and Venezuela, have observed that the method most widely used by taxpayers is the transactional net margin method. Other administrations recognize that their own methodology is the one mainly used, for example, as in the case of the Dominican Republic that has established the method based on indexes for different sectors.