Transfer Pricing in Honduras
The transfer pricing regime in Honduras was introduced in 2011, through the publication of the “Transfer Pricing Regulation Law” by means of Decree N°232-2011, however, the norm indicated that it would not enter into force until January 2014.
In September 2015, Agreement N°027-2015 was published, which regulates the transfer pricing law. This regulation included provisions on the deadline for submission, methodology to be used, among others. Therefore, it is as of this year that the taxpayers reached in the norm are obliged to file the return.
Likewise, at the end of 2016 the New Honduran Tax Code was enacted, which modifies article 113 related to transfer pricing.
Definition of Transfer Pricing
Transfer prices are defined as those prices or values agreed for transactions carried out between related parties, which are also often referred to as intercompany transactions.
The Principle of Full Competition in Honduras
The principle of full competition or “arm’s length” that regulates transfer prices is based on the fact that the prices agreed for transactions between related parties must be in line with market value, that is, based on prices that would have been agreed by independent third parties.
This principle is also regulated in the transfer pricing legislation of Honduras, in numeral 5, article 3, of the Transfer Pricing Law.
It is defined as that in which commercial transactions between related parties are treated as if they were carried out between independent parties.
Scope of Application of Transfer Pricing in Honduras
According to Article 2 of the Law and its Regulations, the transfer pricing rules apply to operations carried out between a natural or legal person residing in Honduras, with its related parties and/or those covered by special regimes that enjoy tax benefits.
Definition of Related Parties in Honduras
The following are considered related or connected parties, according to Article 11 of the Regulations of the Law:
- The natural or legal person that participates in the other, directly or indirectly, in the management, control or capital.
- This participation includes that which is exercised through a link or relationship of kinship of the natural person.
- Have the same persons in common that participate in the manner indicated in the previous paragraph, in both companies.
- A natural or legal person resident in Honduras, with respect to its permanent establishment abroad.
- A permanent establishment in Honduras, with respect to its parent company abroad.
- The person resident in the country in relation to the agent, distributor who enjoys exclusivity.
- When agreeing on contractual clauses that are preferential, with respect to those granted to third parties in similar circumstances.
- When there is financial dependence derived from a joint action agreement.
- Operations are carried out with parties incorporated in a country or territory known as a “paraíso fiscal”.
Likewise, Article 12 of the Regulations states that participation in the management, control or capital is understood when any of the following situations occurs:
- More than 50% of the capital is owned, directly or indirectly.
- It can influence the business decisions of the company.
Transfer Pricing Methodology in Honduras
In accordance with Article 8 of the Law and Article 23 of the Regulations, in order to determine whether the value of transactions between related parties is in accordance with the principle of full competition, five methods have been established, which are detailed below:
- Comparable Non-Controlled Price Method.
- Added Cost Method.
- Resale Price Method.
- Profit Distribution Method.
- Net Transaction Margin Method.
It should be noted that the standard indicates “applicable alternative methods”, which enables the taxpayer to use another method other than those already stated, provided that it is shown that these cannot be reasonably applied and the alternative method is in accordance with the principle of free competition.
Likewise, the choice of the method must be the most appropriate to the specific circumstances of the transaction.
Comparability Analysis in Honduras
In order to be able to analyze whether a transaction is comparable, Article 19 of the Regulations points out certain comparability factors such as:
- The characteristics of the operations of goods or services.
- The functions, assets and risks assumed by each party to the transaction.
- The contractual terms governing the transaction.
- The economic circumstances.
- The business and commercial strategies.
Transfer Pricing Declaration in Honduras
According to Article 17 of the Transfer Pricing Regulation Law, taxpayers within the scope of transfer pricing must submit, together with their Tax Return, the transfer pricing affidavit to the Executive Revenue Directorate.
Likewise, Article 30 of the Regulations to the Law indicates those obliged to file such statement:
- Individuals or legal entities that carry out transactions with related parties, provided that the former are medium or large taxpayers.
- It should be noted that according to the instructions for filling out the return, only those who exceed US$ 250,000 for intercompany transactions will declare.
- Individuals or legal entities that carry out transactions with related parties that are covered by special regimes that enjoy tax benefits.
- Individuals or legal entities that carry out commercial transactions with related parties or with companies that reside in countries known as “paraísos fiscales”.
- Individuals or legal entities that carry out transactions with related parties whose accumulated amount is greater than that indicated by the Tax Administration. Which according to the Instructions of the declaration would be one million American dollars in the fiscal year and will be for small taxpayers.
Regarding the filing period, Article 31 of the Regulations states that it will depend on the closing of the fiscal period of each taxpayer, so those whose closing date is December 31 will have to file it from January 1 to April 30 of the following year.
In the case of taxpayers with special fiscal periods, it must be presented at the latest within the three months following the closing of the fiscal period.
Transfer Pricing Documentation in Honduras
Taxpayers must have the documentation that supports the analysis of the transactions carried out with related parties before a possible requirement from the Tax Administration.
Sanctions for Noncompliance with Transfer Pricing in Honduras
According to Article 35 of the Regulations, specific infractions related to transfer pricing are stipulated, such as:
- Failure to provide or provide false information in the returns or documentation required by the Tax Administration, which is penalized with US$10,000 payable in Lempiras.
- Declaring a lower taxable base for a valuation not in accordance with the principle of full competition, whose sanction will correspond to a fine of 15% of the value of the adjustment, in case it was committed together with the previous infraction the fine will amount to 30% or 20,000 dollars.
- Any other failure to comply with any provision of the Transfer Pricing Regulation Law, which will be sanctioned with a fine of $5,000 payable in Lempiras.
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