The purpose of this article is to provide information on the Transfer Pricing Legislation in Costa Rica, making available to find different concepts related to the matter, methodology, subjects obliged to the Informative Affidavit and the penalties for non-compliance.
Transfer Pricing in Costa Rica has as a normative antecedent the Interpretative Guideline N°20-03.
Since 2013, nevertheless, with the Decree 37898-H publication, a more extensive regulation was issued on the matter, which indicated the application scope, linkage rules, formal obligations, among others.
In the same way, in September 2016, Resolution No. DGT-R-44-2016 was issued by the General Directorate of Taxation (GDT) establishing the guidelines for the Informative Affidavit in this matter.
Subsequently, in 2018, the rules related to Transfer Pricing matters were incorporated to the Income Tax Law (ITL), through of Law No. 9635, and eventually in 2019 they were incorporated to their Regulations, through Executive Decree No. 41818.
In the same year, Resolution No. DGT-R-001-2018 was issued in order to comply with the guidelines set forth by the Organization for Cooperation and Development (OECD) in Action 13 of the BEPS (Base and Erosion and Profit Shifting) Plan on Supporting Documentation, establishing the Country by Country Report obligation multinational economic groups.
In addition to the quoted above, in 2019 Resolution DGT-R-49-2019 was issued, by which the taxpayer who carries out transactions with related parties must have an informative report from the local company and a corporate information report.
The “Arm’s Length” principle is taken to mean that the prices agreed among related parties are at market value, i.e. the prices of the transactions are determined as if they had been carried out by independent parties.
In the case of Transfer Pricing Legislation in Costa Rica, this is currently regulated in Article 81 bis of the Income Tax Law.
Taxpayers who carry out transactions, according to this article, with related parties must determine their income or deductions according to the Arm’s Length Principle, i.e. as if they had entered into the transaction with independent parties.
According to Article 68 of the ITL Regulaions, either individuals, legal entities or other entities that are resident or non-resident in Costa Rica can be considered as related parties, provided that they participate directly or indirectly in the management, control or the taxpayer’s capital.
Likewise, they are also considered to be related when the same persons participate directly or indirectly in the same manner as mentioned above.
Regarding this, the aforementioned article states specifically that will consider as related parties to:
In addition, the Regulation states that a linkage will be presumed when operates with a person or entity that has as its residence in a non-cooperative extraterritorial jurisdiction (tax haven), understanding as such those who are in any of the following situations:
According to Article 70 of the aforementioned Regulation, in order to analyze that the prices agreed among related parties are in accordance with the Free Competition Principle, the following methods are established:
The commodities’ case is also indicated as allowed for the use of a methodology based on international valuation in the commodities markets.
Article 60 of the ITL Regulations, states that in order to perform the comparability analysis, the following criteria must be taken into consideration:
The Transfer Pricing Legislation in Costa Rica provides in the ITL Regulation, articles 72 and 73, a Transfer Pricing Informative Affidavit and a supporting documentation, respectively.
Article 72 of the aforementioned Regulations states that taxpayers who comply with any of the following situations will be required to file an Informative Affidavit with the General Directorate of Taxation:
In January 2018, Resolution No. DGT-R-001-2018 established the requirement to file the Country by Country Report for those or multinational entities or groups that have global and accumulated gross revenues equal to or exceeding the 750 million euros or its equivalent and that are in any of the following situations:
According to Article 5 of the aforementioned Resolution, such report must be filed up to December 31st of the year following the related transactions.
According to Article 73 of the Regulations, taxpayers subject to Transfer Pricing rules must have documentation on the valuation of their transactions, which must be available to the Tax Administration.
Likewise, through Resolution DGT-R-49-2019, measures were issued on the information to be documented, which the taxpayer must have an informative report of the local company (Local File) and a corporate information report (Master File), this in line with BEPS Action 13 on Supporting Documentation in this matter.
This information is annual and, as mentioned above, must be available to the DGT.
According to Article 83 of the Costa Rican Code of Tax Rules and Procedures, the non-compliance either total or partial to provide information within the term established by the Law or Regulation entails to a penalty equivalent to (2%) of the gross revenues of the offending party in the profit tax period prior to that which the infraction occurred, with a minimum of three base salaries and a maximum of one hundred base salaries.