Costa Rica: New Transfer Pricing legislation

On 13 September 2013, the Ministry of Finance published Decree 37898-Hthat establishes new legislation on transfer pricing for Costa Rican taxpayers. Much of the legislation is common to that used in other countries in the region but there are some particular considerations to this new legislation. Following is an analysis of the main points covered by the new rules.

The decree states in Section 4 what is considered a related person or entity: 'natural or legal persons and other entities resident in Costa Rica and also those living abroad who participate directly or indirectly in the management, control or capital of the taxpayer, or when the same persons participate directly or indirectly in the management, control or capital of both taxpayers, or for some other objective causes can exert a systematic influence on their pricing decisions.' whereby the scope of the decree is not limited to related parties located abroad but covers local related parties too.

There are other provisions in the regulation that further detail the means by which a relation may be determined.

It is especially important to note that parties are considered related when: (i) they are linked by a joint venture contract when one of the contractors receives more than 25% of the profits of the contract, (ii) the local representative and the foreign company being represented and (iii) local permanent establishment of an enterprise domiciled abroad, among others.

Regarding the documents needed to assess the relationship with related parties, Article 9 states that the information must be available in Spanish and be kept available to the tax authorities for a period of five years. There is also an extensive list of documents that must be maintained, among which highlighting those strictly related to accounting books, but without neglecting operational, commercial and regulatory information.

The statute of limitation is governed by the general rule of Tax Procedures Code and is four years, but may be extended up to ten years in case of taxpayers that are not registered with the tax authorities or those that submitted statements qualified as fraudulent, or did not submit them at all.

Finally, it should be noted that the legislation allows for advance transfer pricing agreements with a term of up to three years.


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