Extended Background

Colombia’s markets, like many in Latin America, face periodic cycles and downturns. Authorities had often excluded loss-making comparables when benchmarking, believing only profitable entities reflected true arm’s-length pricing. This practice was increasingly at odds with OECD BEPS guidance recognizing the legitimacy of business cycles.

Detailed Arguments

Taxpayer

• Demonstrated industry volatility and presented loss-making comparables as valid when justified by independent market circumstances.

• Insisted “profit-only” samples distorted results and failed to reflect real industrial risks.

Revenue

• Sought to maximize revenue by excluding losses and tightening the arm’s-length range.

Court Reasoning

• Ordered authorities to include justified loss-makers if functionally comparable, aligning with economic realities and OECD norms.

Procedural Journey

• Litigation in Colombia’s Supreme Administrative Court ended the “profit-only” rule, setting national precedent.

Implications Beyond the Case

• Across emerging markets, loss makers are now a valid part of comparable sets; more realistic benchmarking must be used.

Original Case Link:

ALSTP legal update