Transfer Pricing in Nicaragua

The transfer pricing regime in Nicaragua was introduced by Law No. 822 or “Ley de Concertación Tributaria” The book was published in La Gaceta No. 241 of December 17, 2012.

Although article 303 of said Law stated that its entry into force would be on January 1, 2016, due to the publication of Law No. 922 in December 2015, its entry into force was extended with respect to transfer pricing rules.

Thus, it is only as of June 30, 2017 , date in which the regulations on this matter are in force. 

Transfer pricing and the principle of full competition

Transfer prices are understood to be those prices or values agreed for operations carried out between related parties or also called intercompany transactions.

The principle governing transfer pricing is the arm’s length principle. The basis for this is that the prices governing transactions with related parties are in line with market value, i.e., as if they had been agreed upon by independent parties.

This principle is also included in Nicaragua’s transfer pricing legislation, in Article 96 of the Law, which states that transactions between related parties must be valued according to the prices that would have been agreed upon by independent third parties, in comparable transactions.

Scope of application of transfer pricing in Nicaragua

Article 95 of the Law indicates the objective scope of transfer pricing, which reaches the following:

  • Operations carried out between a taxpayer resident in the country and related non-resident parties.
  • Operations carried out between a resident and those operating under the free zone regime.

Such operations, as indicated in the aforementioned article, shall be those that have effects on the determination of the Income Tax, in the fiscal period under analysis.

Definition of related parties in Nicaragua

According to Article 94 of the Law, the following are considered related parties:

  • When a company controls or possesses, directly or indirectly, another company for at least 40% of its capital.
  • When two companies have five or less persons that directly or indirectly control or jointly own at least 40% of the capital.
  • Two companies belong to the same business unit.
  • The contractors or associates, in a contract of business collaboration or a joint venture, respectively, when they directly or indirectly hold more than 40% in the result or profit of the contract.
  • The person resident in the country in relation to his exclusive agent or distributor resident abroad.
  • The person resident in the country in relation to its permanent establishments abroad.
  • The permanent establishment is located in the country with respect to its parent company abroad.

It should be noted that for the first case indicated, an individual will also be considered to have the indicated proportion in the capital, if the ownership of the capital corresponds, directly or indirectly, to the spouse or person united by a family relationship, either by blood up to the fourth degree or by affinity up to the second degree.

Transfer pricing methodology in Nicaragua

In order to determine whether the values agreed in transactions with related parties comply with the principle of full competition, Article 100 of the Law states that the following methods may be used:

  • Non-controlled Comparable Price Method.
  • Added Cost Method.
  • Resale Price Method.
  • Profit Sharing Method.
  • Net Transaction Margin Method.

The standard also indicates that any of the first three methods listed above, which is more appropriate, should be used as the first option. 

In the event that due to the complexity of the transactions or lack of information these cannot be applied, any of the last two may be applied.

Transfer pricing declaration and documentation in Nicaragua

According to Article 103 of the Law, taxpayers must have, at the time of filing the income tax return, the documentation of the operations with related parties.

Such documentation or transfer pricing study must take into consideration the information relating to the taxpayer and the business group to which it belongs, as well as that relating to the description and analysis of the operations subject to the transfer pricing rules.

The taxpayer shall only deliver this information when required by the Tax Administration, for which it shall have a term of 10 working days.

So far, no regulations or additional provisions have been established that indicate the form of the transfer pricing information return.

Fines for noncompliance with transfer pricing in Nicaragua

The transfer pricing legislation in Nicaragua has not established specific infractions and penalties for non-compliance.

However, if the Tax Administration were to make a transfer pricing adjustment, it would be committing the contravention indicated in article 137 of the Nicaraguan Tax Code, whose fine is 25% of the adjustment.


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