Transfer Pricing in Nicaragua
Transfer Pricing in Nicaragua has been in force for approximately 4 years, so it has not yet incorporated the levels of documentation required by Action 13 of the BEPS (Base Erosion and Profit Shifting) Plan issued by the Organization for Economic Cooperation and Development (OECD). This article provides a brief overview of such legislation, addressing concepts, linkage cases, methodology, formal obligations and penalties for non-compliance.
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.
Transfer Pricing and the Principle of Full Competition
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.
Application Scope of Transfer Pricing in Nicaragua
- Transactions performed among a taxpayer resident in the country and non-resident related parties.
- Transactions performed between a resident and those operating under the free trade zone regime.
Definition of Related Parties in Nicaragua
- When a company controls or owns, directly or indirectly, at least 40% of the capital of another company.
- When two companies have five or less persons who directly or indirectly control or own together at least 40% of the capital stock.
- Two companies belonging to the same business unit.
- The contracting parties or associates, in a business collaboration contract or a joint venture, respectively, when they directly or indirectly own more than 40% of the result or the profit of the contract.
- The person resident in the country in relation to its exclusive agent or distributor resident abroad.
- The person resident in the country regarding to its permanent establishments abroad.
- The permanent establishment located in the country with respect to its parent company abroad.
Transfer Pricing Methodology in Nicaragua
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:
- Uncontrolled Comparable Price Method.
- Added Cost Method.
- Resale Price Method.
- Profit Splitting Method.
- Net Transaction Margin Method.
Transfer Pricing Affidavit and Documentation in Nicaragua
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.
Sanctions for Transfer Pricing Non-Compliance in Nicaragua
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.
Offices in Nicaragua
- Residencial Los Robles Nº 82, Managua – Nicaragua
- contacto@tpcgroup-int.com
- + 505 78777911
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