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Puerto Rico Department of the Treasury requirement for certain entities to obtain a transfer pricing study for having a full deductibility of intercompay charges.

We have attached the Administrative Determination 21-05 (Spanish Version is the only version available at the time of this post) issued by the PR Department of the Treasury (the Department), with the requirements of having a transfer pricing study on file for purposes of qualifying for a 100 percent deductibility of intercompany charges.

Transfer Price is the price that an entity charges to an affiliate for goods and services when they are each in different tax jurisdictions.

A transfer pricing study is an analysis of the transactions among affiliated entities and a comparison of those transactions with the results of similar transactions among comparable uncontrolled entities to determine if the charges are within the arm’s length range. In the United States and in Puerto Rico, a transfer pricing study is conducted under Internal Revenue Code Section 482 and related regulations.

Starting with tax returns for taxable years after December 31, 2018, certain Puerto Rico taxpayers will be required to obtain a transfer pricing study and file a certification of compliance through Form SC-6175, together with their income tax return. As a clarification made by the Department, the study must be available and submitted to them, when requested, and within 30 days of such request (DA 21-08).

Taxpayers that require a transfer pricing study are those corporations or partnerships that deduct expenses incurred or pay to related entities that are not engaged in business in Puerto Rico. Also, those entities that receive allocations of expenses from their Parent Company, Home Office, or other related entity outside Puerto Rico.

Originally, these types of expenses were deductible up to 49% of the amount incurred and the remaining 51% resulted in a non-deductible tax adjustment. Before 2019, Puerto Rico Treasury allowed the request of a waiver from the application of this provision, but the process was slow and had many roadblocks. 

Act 257- 2018 simplified the process by establishing that, for deducting the total amount of such expenses, the taxpayer must file with the income tax return a Transfer Pricing Study including the Puerto Rico operations. Operations covered under a tax exemption grant are not subject to this requirement. 

If you need further assistance, give us a call +787-461-4995. We will be happy to assist you.

Yamil Rivera, CPA/ABV. Last updated on January 11, 2024.

           DA 21-05                         SC-6175

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