Uruguay’s transfer pricing laws align with the Guidelines set by the Organization for Economic Co-operation and Development (OECD). They are incorporated within the Tax Ordinance.
Arm’s Length Principle
Uruguay uses the arm’s length principle for transfer pricing, particularly in commodity transactions with a transparent market involving intermediaries. In such cases, the market price from a transparent international market is used as a benchmark, consistent with the arm’s length principle that requires pricing to reflect what independent parties would agree on under similar circumstances.
Lastly, for corporate income tax, transactions are presumed to be between related parties and not at market value if they are done with companies located in low- or no-tax jurisdictions, or jurisdictions with special low-tax regimes. This presumption allows the tax authority to potentially adjust such transactions.
Related Party Definition
Two parties are considered related if one controls the other, or if both are controlled by the same person or company. Control can come from owning shares, giving loans, or having some kind of influence even without a formal contract.
Transfer Pricing Methods
The methods that can be used to determine the arm’s length price in Uruguay are:
- Comparable uncontrolled price method
- Resale price method
- Cost plus method
- Transactional net margin method
- Profit split method
Uruguay does not follow a strict list or order (hierarchy) of methods. Instead, it uses the “most appropriate method,” meaning the company must choose the method that best fits the situation.
Comparability Analysis
Uruguay follows the international guidelines on how to compare related-party transactions to independent ones. There is no specific rule saying that local comparisons are better than foreign ones both are accepted, depending on the situation. What matters most is whether the companies being compared operate in similar geographic markets.
The Uruguayan tax authority does not use secret comparisons to assess transfer pricing in practice, even though it technically has the power to do so.
When comparing prices or profits in related-party transactions, Uruguay allows the use of a range of results. If the company’s price or profit falls within the acceptable range (specifically the interquartile range), it is considered correct. If it falls outside that range, an adjustment is made based on the median value, with a 5% margin added or subtracted.
Also, if there are differences between the related-party transaction and the one being used for comparison, Uruguay allows certain adjustments to make them more similar and ensure a fair comparison.
Documentation Requirements
All companies in Uruguay that pay corporate income tax and do business with related foreign companies or with companies in low-tax countries must prepare special documents called transfer pricing documentation. It must be ready within nine months after the end of the company’s financial year and must be submitted to the tax authorities during that same period. However, if the total value of these transactions is small and under a certain limit, the company doesn’t have to submit the documentation.
In addition, Uruguay may require two special reports for multinational companies:
Master File: This is a report that gives an overview of the entire multinational group. It includes information about the group’s structure, what each company does, what assets and risks they have, how they are financed, and how their finances and taxes look.
Country by Country Reporting
Large multinational groups with income over 750 million euros in the previous year must file this report. It shows where the group’s profits, employees, and activities are located around the world. However, a company in Uruguay doesn’t need to file the CbC report if:
- Another company in the same group is already filing it in a country that shares information with Uruguay, or
- The group’s parent company doesn’t have to file a CbC report in its own country because it hasn’t passed that country’s income limit, even if Uruguay’s income limit is lower.
Advance Pricing Agreements (APA) and Mutual Agreement Program (MAP)
Uruguay has in place Advance Pricing Agreements (APAs) which are agreements between a company and the tax authority that set out terms for related party transactions in advance. Also, these agreements may be between one country (unilateral), two countries (bilateral), or a group of several countries (multilateral). In Uruguay, APAs usually last for three years, starting the year after it is signed.
Mutual Agreement Program (MAP)
Uruguay has rules for APAs that last three years and allows MAPs under its tax treaties, although it is still developing internal procedures for MAPs. There are no fees for MAP requests, and taxpayers can use MAP to resolve transfer pricing and treaty-related issues. Detailed guidance and procedures for MAP are publicly available on the tax authority’s website.
Approach to Transfer Pricing Audits
Transfer pricing audits in Uruguay are increasing in number and complexity. The tax authority actively reviews whether companies follow the arm’s length principle for related-party transactions with foreign entities. Companies must self-assess and be ready to justify their pricing. Only upward tax adjustments are allowed, and losses or adjustments cannot be offset across years or entities. If a company has transactions with related parties abroad or in low-tax jurisdictions, it must be ready to provide documentation, especially if transactions exceed about USD 7.5 million. Even below that threshold, companies must be prepared for audits and keep proper records.
Penalties
Penalties for not filing, filing late, or filing incomplete transfer pricing documents and country-by-country reports depend on how serious the issue is. Fines can range from about EUR 224 to EUR 224,000.
Taxation at a Glance
Uruguay’s main tax rules are found in the Tax Regulations (Ordered Text 1996) and the Tax Code. The key income taxes are: corporate income tax, personal income tax, and non-resident income tax. Other taxes include VAT, wealth tax, and real estate transfer tax.
The currency of Uruguay is the Uruguayan peso. The official name of the Uruguay tax authority is the General Directorate Tax.
The table below provides a summary of the main taxation rates related to businesses:
Tax Type | Tax Rate |
Corporate Tax | 25% |
VAT | 22% |
Withholding tax on dividends to non-residents | 7% |
Withholding tax on interest to non-residents | 12% |
Withholding tax on royalties to non-residents | 12% |
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