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Global transfer pricing guide

Transfer pricing - Costa Rica

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Introduction to Costa Rica transfer pricing
Transfer pricing rules
  • Costa Rica transfer pricing (TP) legislation is stated in the Income Tax Law (ITL), Article 81Bis, also Articles 65 to 74 of the Income tax Bylaw and is based on the arm’s length, ie it follows the OECD Guidelines.
  • The TP rules apply to all Costa Rican taxpayers, including Costa Rican branches of foreign companies and there is a self-assessment regime, ie the burden of proof is on the taxpayer to confirm its TP meets the standard.
  • The Costa Rica TP rules are mandatory for companies with foreign and domestic intercompany transactions. If Dirección General de Tributación (DGT) requests transfer pricing documentation, the taxpayer will normally have a deadline of 10 business days to respond.
  • The OECD concept of Master File and Local File is an obligation for all taxpayers. Local rules follow the transfer Pricing Guidelines for Multinational Companies and Tax Administrations (TPG), approved by the Organization for Economic Cooperation and Development (OECD)
OECD guidance
  • The Costa Rican TP rules provides, as a means of interpretation the Transfer Pricing Guidelines for Multinational Companies and Tax Administrations (TPG), approved by the Organization for Economic Cooperation and Development (OECD) in 1995, or those that replace them. OECD Guidelines could be used as reference of “good practice” if it does not contradict what is mentioned in the law or bylaw.
Transfer pricing methods
  • Taxpayers must apply the best method, choosing for the Comparable Uncontrolled Price Method (CUPM), Resale Price Method (RPM), Cost Plus Method (CPM), Profit Split Method (PSM), and the Transactional Operating Profit Margin Method (TOPMM). Costa Rica TP rules also considers the commodity rule or “sixth method”.
  • Costa Rica has a self-assessment regime, where the burden of proof is on the taxpayer to ensure that TP regulations are adhered to.
Transfer pricing documentation
Preparation of transfer pricing documentation
  • In Costa Rica there are four types of TP documentation: (i) local file, (ii) master file, (iii) CbCR and (iv) TP Informative return.
  • All taxpayers with transactions with related parties are obligated to prepare the local file and master file.
  • Large national taxpayers, companies in free trade zone regimes and any taxpayer with transactions over 1.000 base salaries (base salary = Colones 462.200) are required to fill a transfer pricing informative return. Currently this obligation is suspended until further notice.
  • As far as the CbCR is concerned, Costa Rica is attached to what is expressed by the OECD, so the content that this report should include is the same as what the OECD indicates it should contain.
Master and Australian local file
  • The Local File and Master File are an obligation for all taxpayers. In Costa Rica the local and master file follows most requirements of the OECD Guidelines. In addition, it is worth mentioning that the local and master file for Costa Rican purposes must be prepared in Spanish.
Some risk factors for challenge
  • Persistent losses in any entity.
  • Transactions with low tax jurisdictions resident related parties.
  • Corporate services payments to foreign related parties.
  • It is important to mention that there are not specific penalties for transfer pricing requirements. DGT is “adapting” some of the penalties included in the Código de Normas y Procedimientos Tributarios (Costa Rica Tax Code) to TP purposes.
  • Failure to provide the local or master file upon request may trigger a penalty between 3 and 100 base salaries (base salary = Colones 462.200). Final amount will be the result of applying the formula of gross income of previous fiscal year multiplied by 2%, with the limits previously mentioned.
Economic analysis and how to demonstrate an arm’s length result
  • DGT will expect to see a detailed explanation about how the internal or external comparable transaction/entities were selected for the analysis.
  • Usually, the use worldwide comparable companies search is employed.
  • The use of interquartile range is required
Advance Pricing Agreements (APAs), dispute avoidance and resolution
  • Advanced Pricing Agreements (APAs) are written agreements between a taxpayer and DGT to govern the appropriate transfer pricing method for a forward-looking period.
  • APAs bylaw is new (2021) so currently is rare for a taxpayer to file an APA.
  • N/A
Related developments
Digital services tax
  • There are new VAT rules for companies dedicated to the digital economy. 
DGT and taxpayer behaviour
  • DGT has been pushing the use of Comparable Uncontrolled Price Method, sometimes proceeding with technically questionable adjustments. Therefore, taxpayers must have strong evidence and analysis when rejecting the use of that method.
  • Also, DGT reinforced the review of comparable entities, sometimes rejecting and adjusting the interquartile rage.
  • No measures have been taken regarding COVID-19

For further information on transfer pricing in Costa Rica please contact:

Alonso Erak Vargas
+506 40810100

Mario Hidalgo Matlock
+506 40810100