Market overview

Despite transfer pricing being relatively new in Uruguay, there has been an increase in regulatory oversight over the last year. "Uruguay has entered into more than 10 tax information exchange agreements and more than 15 double taxation agreements," said Domingo Pereira, head of transfer pricing at Bergstein Abogados.

Moreover, following the international trend, the number of audits conducted by the tax office has increased in Uruguay. However, "audit levels still remain relatively low since the tax office's main concern has been raising awareness among taxpayers, of the importance of transfer pricing compliance," said Pereira.

In number 5,947 of the Uruguay binding advisory opinions, the tax office delivered a highly contentious reading on the scope of TP rulings in the country. It was held that "transfer pricing rules apply to all companies in Uruguay, regardless of whether such companies are legally obliged to pay corporate income tax or are exempted from such a tax," said Guzmán Ramírez, senior lawyer at Bergstein Abogados's tax department. Uruguayan law grants significant tax incentives, including corporate income tax exemptions, for companies in several sectors of the economy which will now be affected by this reading.

"Such companies will be required to perform and keep a transfer pricing study, with the associated administrative costs involved, even though any adjustment on the prices agreed in their transactions with related entities, would not have any tax impact because such companies are exempted from corporate income tax. As such, the tax office's opinion seems to be, from a technical-tax perspective, poorly grounded and highly debatable," Ramírez added.

Furthermore, on December 29 2016, Uruguay's government passed the Tax Transparency Act. The act introduced significant TP changes in order to align Uruguay's TP rules with OECD's guidelines. According to Ramírez before the law changed the information provided to the tax office included a statement detailing and quantifying the operations under TP rules, a copy of the balance sheet for the fiscal year and a TP study. Now the companies are required to submit country-by-country reports (CbCR) and a master file.

Pereira argues, "The Tax Transparency Act still needs to be supplemented by the executive branch regulations in order to clarify several issues." One of which relates to definition of 'multinational group of large economic dimensions' which Pereira expects would be defined according to Action 13 of the BEPS plan.

Despite the increase in regulatory measures, the law still lacks definitive and grounded rules on all aspects of transfer pricing, according to Pereira. "Under the existing tax secrecy rules, information about comparable transactions, analysed by the tax office for transfer pricing purposes is not publicly accessible," said Pereira.

Although the act did not introduce any changes to the requirements and conditions of the local file, it did however lead to an amendment of the local TP special tax return template. "In the new template the requirements of information are significantly broader than the existing ones," said Juan Manuel Albacete, head of tax and transfer pricing at Guyer & Regules.

The act further allows the tax office to enter into bilateral and multilateral advanced pricing agreements (APAs). Previously, only unilateral APAs were allowed. Article 65 of the Transparency Law grants the tax office the possibility to sign bilateral and multilateral APAs provided there is a double taxation treaty in force with the other tax administration(s) involved. "This is a favourable change for companies as it could mitigate the problems of discordant interpretations from foreign administrations in case of a corresponding adjustment," said Albacete.

Lastly, chapter III of the act modified the tax regime relating to low or null tax jurisdictions (LONT). "Transactions with entities in low or null taxation jurisdictions will pay higher taxes or shall pay taxes under conditions in which other entities would not have to pay," Albacete said. The government authorities have stressed that the aim of chapter III is to discourage the use of LONT entities.

Tax authorities

Dirección General Impositiva (DGI)
Av. Daniel Fernandez Crespo 1534
CP 11200 Montevideo
Tel: +59 82 1344
Website: www.dgi.gub.uy

Tax rates at a glance

(As of July 2017)

Corporate income tax 25%
Capital gains 25%
Branch tax rates 25%/7%
Withholding tax
Dividends 7%
Interest 7% or 12%
Royalties from patents 12%
Equipment to rent 10-20%
Technical service fee 12%
Branch remittance tax 10%

Source: Deloitte