Regulation of Advance Pricing Agreements (APA) in Guatemala

The regulation of transfer pricing in Guatemala is based on the free competition principle. This principle is defined as the price or amount for a given transaction that independent parties would have agreed upon under comparable conditions.

Taxpayers engaging in transactions with related parties must demonstrate compliance with the arm’s length principle through transfer pricing studies. However, the Tax Administration has the authority to verify compliance with this principle and make necessary adjustments. This can create uncertainty for taxpayers, as they are subject to subsequent review by the Tax Administration. As a result, transfer pricing regulations allow both parties to enter into Advance Pricing Agreements (APAs).

In the field of transfer pricing, APAs are considered a valuable tool for providing legal certainty to taxpayers as they aim to reduce compliance control costs. This is because the agreements are governed for a specified period with the approval of the relevant Tax Administration.

The OECD, in its transfer pricing guidelines, defines APAs as an arrangement that determines, in advance of controlled transactions, appropriate criteria for the determination of transfer pricing for these transactions over a specified period. An APA is formally initiated by a taxpayer and requires negotiations between taxpayers, one or more related entities, and one or more tax administrations. APAs aim to replace traditional mechanisms for resolving transfer pricing issues.

In 2023, the framework for the publication of APA statistics was released by the Forum on Tax Administration, which seeks to prevent transfer pricing dispute cases. These statistics will be applied starting this year.

In Guatemala, art. 63 of the Tax Update Law allows for the conclusion of APAs. It establishes that taxpayers may request the Tax Administration to determine the valuation of transactions between related parties before their execution. This request must be accompanied by a proposal from the taxpayer based on the value that independent parties would have agreed upon in similar transactions. The Tax Administration has the authority to approve, deny, or modify the proposal.

The agreement reached between the Tax Administration and the taxpayer can be valid for up to four periods from the date of approval. This agreement eliminates the risk of future adjustments for the taxpayer and reduces costs for the Tax Administration by avoiding the need for audits of transactions between related parties.

Currently, there is no known implementation of this regulation. However, entering into such agreements would benefit not only taxpayers but also the Tax Administration itself, as it could improve the relationship between both parties by generating unified criteria on the treatment of transactions between related parties.

[1] Hernández, Esther Arreglo anticipado de fijación de precios, CIAT.

[2] Organización para la Cooperación y el Desarrollo Económico