Transfer Pricing in Honduras

The Transfer Pricing rules are in force since 2015 in Honduras. The purpose of this article is to address the main aspects of this regime such as definitions, Transfer Pricing methodology, formal obligations such as the Informative Affidavit and sanctions for non-compliance.

The Transfer Pricing regime in Honduras was introduced in 2011, through the publication of the “Transfer Pricing Regulation Law” by Decree N°232-2011, nonetheless, the regulation stated that it would enter into force only in January 2014.

In September 2015, Agreement N°027-2015 is published, which regulates the Transfer Pricing Law. In this regulation provisions were given about filing deadline, methodology to be used, among others. Therefore, it is from this year in which taxpayers reached in the regulation are required to file an Affidavit.

Also, at the end of 2016, the New Honduran Tax Code was enacted, which amends Article 113 related to Transfer Pricing.

 

Transfer Pricing: Concept

Transfer prices are defined as those prices or values agreed for transactions performed among related parties, which are also commonly referred to as intercompany transactions.

 

The Principle of Full Competence in Honduras

The Arm’s Length principle, which regulates Transfer Pricing, is based on the fact that the prices agreed for transactions among related parties must be in accordance with market value, i.e. based on prices that would have been agreed upon by independent third parties.

This principle is also regulated in the Honduran Transfer Pricing legislation, in article 3, paragraph 5 of the Transfer Pricing Law.

It is defined as one in which commercial transactions among related parties are treated as if they were carried out among independent parties.

 

Application Scope of Transfer Pricing in Honduras

Pursuant to Article 2 of the Law and the Regulations of said Law, the Transfer Pricing rules apply to transactions performed among an individual or legal entity resident in Honduras, with the related parties and/or those covered by Special Regimes having tax benefits.

 
The following are considered linked or related parties, in accordance with Article 11 of the Regulations of the Law:
 
  • The natural person or legal entity who participates in the other company, directly or indirectly, in the management, control or capital. Enterprises are included in this participation exerting through a linkage or kinship relationship of the natural person.
  • Enterprises that have the same persons in common who participate according to the quoted above in both companies.
  • A natural or juridical person resident in Honduras, regarding to the permanent establishment abroad.
  • The permanent establishment in Honduras, regarding to the parent company abroad.
  • The person resident in the country in relation to the agent, distributor who have exclusivity.
  • When contractual clauses are agreed upon 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.
  • Transactions are performed with parties incorporated in a country or territory of low or no taxation called tax haven.
 
Likewise, Article 12 of the Regulations establishes that participation in the management, control or capital is taken to mean as participation in the management, control or capital when any of the following situations occur:
 
  • More than 50% of the capital is owned, directly or indirectly.
  • It can influence the company’s business decisions.
 

Transfer Pricing Methodology in Honduras

According to Article 8 of the Law and Article 23 of the Regulations, in order to determine whether the value of transactions among related parties is in accordance with the Arm’s Length principle, five methods have been established, which are detailed below:
 
  • Uncontrolled Comparable Price Method.
  • Added Cost Method.
  • Resale Price Method.
  • Profit Distribution Method.
  • Net Transaction Margin Method.
 
It should be noted that the regulation states “applicable alternative methods“, which allows the taxpayer to use a different method than those quoted above, provided that it is demonstrated that these cannot be applied in a reasonable manner and the alternative method is in accordance with the Arm’s Length principle.
Likewise, the choice of 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 sets forth certain comparability factors such as:

  • The characteristics of the goods or services transactions.
  • The functions, assets and risks assumed by each party in the transaction.
  • The contractual terms ruling the transaction.
  • Economic circumstances.
  • Business and commercial strategies.
 

Transfer Pricing Affidavit Honduras

According to Article 17 of the Transfer Pricing Regulation Law, taxpayers within the Application Scope of Transfer Pricing must file, along their Tax Affidavit, the Transfer Pricing Affidavit to the Executive Revenue Directorate.

Likewise, Article 30 of the Regulations of the Law states the persons required to file such Affidavit:

 
  • Individuals or legal entities who perform transactions with related parties, provided they are medium or large taxpayers. It should be noted that according to the instructions for filling out the affidavit, only those who exceed US$250,000 for intercompany transactions will file.
  • Individuals or legal entities who transact with related parties that are armed by special regimes having tax benefits.
  • Individuals or legal entities who perform commercial transactions with related parties or with companies that reside in countries known as tax havens.
  • Individuals or legal entities who perform transactions with related parties whose accumulated amount exceeds the amount indicated by the Tax Administration. Which according to the Instructions of the affidavit would be one million U.S. dollars in the fiscal year and will be for small taxpayers.
 
Regarding to the filing deadline, Article 31 of the Regulation states that this regulation will depend on the closure of each taxpayer’s tax period, thus those whose closing date is December 31 will have to file from January 1 to April 30 of the following year.
In the case of taxpayers with special fiscal periods, it must be filed no later than 3 months after the end of the fiscal period.
 

Transfer Pricing Documentation in Honduras

Taxpayers must have the documentation supporting the analysis of the transactions performed with related parties before a possible requirement from the Tax Administration.

 

Sanctions for Transfer Pricing Non-Compliance in Honduras

According to Article 35 of the Regulation stipulates specific infractions related to non-compliance with Transfer Pricing rules, such as:

  • Failure to provide or providing false information in the affidavits or documentation required by the Tax Administration, which is punishable with US$10,000 payable in Lempiras.
  • Declaring a lower taxable base due to a valuation not according with the Arm’s Length principle, whose sanction will correspond to a fine of 15% of the value of the adjustment, in case it has been committed jointly with the previous infraction the fine will amount to 30% or US$20,000.
  • Any other non-compliance with any other provision of the Transfer Pricing Regulation Law, which will be sanctioned with a fine of US$5,000 payable in Lempiras.
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