The Transfer Pricing regime in Nicaragua was introduced by Law No. 822 or “Ley de Concertación Tributaria” (Tax Concertation Law), published in La Gaceta No. 241 of December 17, 2012.
Although Article 303 of this 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.
So as of June 30, 2017, the regulations on the matter started to be in force.
This is understood as those prices or values agreed for transactions performed among related parties or also known as intercompany transactions.
They are also governed by the Arm’s Length principle, which is based on the principle that prices that govern transactions among related parties are in accordance with market value, i.e., as if they had been agreed upon by independent parties.
This principle is also included in the Nicaraguan Transfer Pricing legislation, in Article 96 of the Law, which states that transactions among related parties must be valued according to the prices agreed upon by independent third parties in comparable transactions.
Article 95 of the Law establishes the objective scope of Transfer Pricing application, which includes the following:
Such transactions, as indicated in the aforementioned article, will be those having effects on the determination of income tax in the tax period under analysis.
According to Article 94 of the Law, the following are considered related parties:
It should be noted that for the first case indicated above, an individual will also be considered to own the indicated proportion of the capital, if the ownership of this corresponds, directly or indirectly, to the spouse or person related in kinship, either by blood up to the fourth degree or affinity up to the second degree.
With the purpose to determine whether the values agreed in transactions with related parties comply with the Arm’s Length principle, Article 100 of the Law states that the following methods may be used:
The standard also indicates that any of the first three methods mentioned above, whichever is the most appropriate, should be used as the first option.
In the case that due to the complexity of the transactions or lack of information these cannot be applied, either of the last two may be applied.
According to Article 103 of the Law, taxpayers must have, at the time of filing the Income Tax Affidavit, the documentation of transactions with related parties.
Such documentation or Technical Transfer Pricing Study shall take into consideration the information related to the taxpayer and the business group to which it belongs, as well as the description and analysis of the transactions subject to the rules on this matter.
The taxpayer must only file this information when is requested by the Tax Administration, for which it will have 10 business days until the deadline.
No regulations or additional provisions have been established, so far, to indicate the form of the Informative Affidavit.
Nicaraguan legislation has not established specific infractions neither penalties for non-compliance with the formal requirements of such regime.
Nonetheless, 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, for which the fine is 25% of the adjustment.