Transfer Pricing in Costa Rica

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.


Principle of Full Competition: Concept

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:

A. Individuals, whether natural or legal entities, who are in any of the following situations:

  1. When directly or indirectly the person directs, controls or owns 25% or more of his capital or voting rights of another person’s capital.
  2. When five or fewer persons direct, or both legal entities control or own together, directly or indirectly, at least 25% of the capital stock or voting rights.
  3. When legal entities constitute the same decision- making unit. It shall be understood as such whenever one of the following cases is present:
    • They have the majority of voting rights.
    • They have the power to appoint or dismiss the majority of the members of the administrative body.
    • They could have, according to agreements with other partners, the majority of the right to vote.
    • The majority of the administration has exclusive voting rights.
    • Both the dominant legal entity and the dominated one have the same members in their administrative bodies.
  4. When two or more legal persons form each one of them, a decision concerned to a third legal person.

B. They will be constituted as related parties, in the same way:

  1. When one of the contracting parties or the associates participates in more than 25% in results or profits, in case of a business collaboration contract or a joint venture contract.
  2. The distributor or exclusive agent thereof, resident abroad, as to the person resident in the country.
  3. A distributor or an exclusive agent resident in the country of an entity resident abroad and the latter.
  4. The permanent establishment abroad, regarding the residing person in the country.
  5. A permanent establishment located in the country and its parent company resident abroad, another permanent establishment of the same entity or an individual related to it.

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:

  • Jurisdictions that have a rate exceeding than 40% lower than the rate established for profit tax in Costa Rica.
  • Jurisdictions which Costa Rica does not have an agreement with to avoid double taxation or to exchange information with the Tax Administration of the country.

Transfer Pricing Method in Costa Rica

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:
  • Non-Controlled Comparable Price Method.
  • Added Cost Method.
  • Resale Price Method.
  • Profit Sharing Method.
  • Net Transaction Margin Method.
The commodities’ case is also indicated as allowed for the use of a methodology based on international valuation in the commodities markets.

Comparability Criteria in Costa Rica

Article 60 of the ITL Regulations, states that in order to perform the comparability analysis, the following criteria must be taken into consideration:

  • Characteristics of the operation to be analyzed.
  • Transacion functions, activities and risks.
  • Contractual terms.
  • Economic or market circumstances.
  • Business strategies.
  • Identification and analysis of comparable transactions prices.

Documentation and Transfer Pricing Informative Affidavit in Costa Rica

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.


Transfer Pricing Informative Affidavit

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:

  1. Those who carry out related operations and are in the category of large national taxpayers or large territorial companies, as well as those persons or entities in free trade zones.
  2. Those who carry out operations with related companies and whether separately or jointly exceed the amount equivalent to 1,000 base salaries in the corresponding year.
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:
  1. Being a top-level dominant entity of a multinational group, which is a tax resident of Costa Rica.
  2. If a substitute dominant entity is authorized to file the report.

According to Article 5 of the aforementioned Resolution, such report must be filed up to December 31st of the year following the related transactions.


Transfer Pricing Supporting Documentation

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.


Sanctions for Non-Compliance

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.

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