Bolivia’s transfer pricing (TP) laws align with the Guidelines set by the Organization for Economic Co-operation and Development (OECD Guidelines); however, it has not implemented the OECD’s BEPS Action 13 Regulations regarding transfer pricing. Currently, the TP regulations are incorporated into Law No. 549, July 23, 2014.
Arm’s Length Principle
When related companies do business with each other, the prices for their transactions should be the same as if they were independent companies. This means that the price should match what would be agreed upon in the open market between two unrelated businesses.
Related Party Definition
Related parties are defined as those in which there is direct or indirect participation in management, control, or capital, or when a third party participates directly or indirectly in the management, control, or capital of two or more enterprises. Additionally, if a Bolivian company does business with entities in tax havens, those transactions may automatically be treated as related-party dealings, even if there’s no formal connection between the parties.
Transfer Pricing Methods
The methods that can be used to determine the arm’s length price in Bolivia are:
- Comparable Uncontrolled Price Method
- Resale Price Method
- Cost Plus Method
- Transactional Net Margin Method
- Profit Split Method
In addition to the five methods by the OECD, Bolivia also uses the Evident Price on the Transparent Markets method – adopted from the Argentinian law. The selection of the method used is based on the most appropriate method rule and takes into consideration factors such as the nature and economic reality of each transaction.
Comparability Analysis
A comparability analysis must be conducted to select the appropriate method and to demonstrate that transactions are at arm’s length. Factors considered include contractual terms, the characteristics of goods or services, economic circumstances, the functions performed, the assets used, and the risks assumed.
Bolivia’s legislation allows for the usage of both, domestic and foreign comparables to determine the arm’s length principle.
Documentation Requirements
As Bolivia has not implemented the BEPS Action 13 Regulations, domestic legislation is not based on the OECD three-layer documentation comprised of Master, Local files, and CbC reporting. Based on Supreme Decree No. 2227 taxpayers in Bolivia must prepare a transfer pricing study for certain transactions between related companies. This study must be available for both the tax and customs authorities.
The study should include:
- The name of the taxpayer and the related companies involved
- A description of what each company does
- Details of the transaction, including the amounts involved
- The tax residence (country) of each related company
- The business reasons and strategy behind the prices used
- A description of the taxpayer’s role and activities in the transaction
Documentation must be submitted only in the Spanish language, and submitted to the tax authorities within 120 days after the end of the fiscal year. Documentation must be prepared in both hard copy and digital formats; while the hard copy is submitted to the taxpayer’s offices, the electronic version is submitted to their webpage.
Advance Pricing Agreements (APA) and Mutual Agreement Program (MAP)
Bolivia does not offer advance pricing agreements or advance tax rulings.
Approach to Transfer Pricing Audits
Tax authorities may request transfer pricing documentation from taxpayers and initiate a transfer pricing audit. The audit process can include a review of related-party transactions, and adjustments can be made if prices are not in accordance with the arm’s length principle.
Penalties
Failure to comply with transfer pricing documentation requirements may result in adjustments to taxable income and penalties. Penalties may include fines and interest on unpaid taxes. For instance, if a company fails to submit its transfer pricing information or tax return (Form 601), it can be fined up to USD 1,684. If the information is submitted late or incomplete, the fine is USD 842.
Repeated non-compliance may lead to additional sanctions. As such, if a company files an incorrect or too-low tax return and doesn’t notify the authorities, it may be treated as a tax crime, which can lead to fines or imprisonment for 3 to 6 years.
Taxation at a Glance
In Bolivia, both companies and individuals pay taxes under the Income Tax Law (ITL). This law sets a flat tax rate on income from business activities. Taxes on income (for both people and businesses) are only collected by the national government, not by local or regional authorities. Corporate taxation is based on the territorial tax system, and businesses are taxed only on their income from Bolivian sources.
The currency of Bolivia is the Bolivian Peso.
The official name of the Bolivia tax authority is the Internal Revenue Service (IRS).
The table below provides a summary of the main taxation rates related to businesses:
Tax Type | Tax Rate |
Corporate Tax | 25% |
VAT | 13% |
Withholding tax on dividends to non-residents | 12.5% |
Withholding tax on interest to non-residents | 12.5% |
Withholding tax on royalties to non-residents | 12.5% |
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