On April 29th of this year, an important general resolution was published in La Gaceta, the MH-DGT-0015-2026, which establishes the interpretive criteria for the application of International Financial Reporting Standards, a key regulatory piece for the correct application of accounting standards. This is fundamental for shareholders and creditors of companies to have information that correctly reveals the financial status of companies, and for their financial departments to know how the tax administration will interpret their financial statements and declarations. This is because accounting itself, with adjustments, will form the basis of the declarations submitted to the tax authorities.
Why does this IFRS resolution matter?
This resolution was very important, and I'd like to take this opportunity to thank the authorities for issuing it, because the private sector requires certainty and clear rules. The resolution clearly understands the need to harmonize two sets of standards that must be aligned: IFRS and the tax legal framework. For example, paragraph six of the resolution states that “for tax purposes, net realizable value or market value will not be accepted as a measurement basis in financial statements for updating purposes, except for the valuation of transactions between related companies for transfer pricing purposes and exchange rate differentials, according to current regulations issued by the DGT.”.
In essence, the resolution states that for calculating income tax, the valid measurement basis is the historical cost, not the net realizable value nor the market value.
Historical Cost vs. Fair Value: The Example That Clarifies Everything
This means that if a company applies IFRS and records its assets at fair value or adjusts inventory to net realizable value, those accounting adjustments They have no tax effectThey do not generate taxable income or deductible expense at the time they are recorded in accounting. Let's look at an example: imagine a company that has inventory that cost ₡100 million but whose market value fell to ₡70 million. Under IFRS, the company records an accounting loss of ₡30 million (adjustment to net realizable value). The resolution states: this ₡30 million loss is not tax-deductible until the inventory is sold or effectively written off. The same applies in reverse: if an asset increases in value and is revalued, that gain is not taxable income until there is a real transaction.
The two exceptions: transfer pricing and exchange rate differences
However, the provision is not absolute. And wisely, the DGT establishes that market value is accepted in two specific cases:
- Transfer Pricing: When transactions occur between related parties, the Tax Administration requires the use of market prices under the arm’s-length principle. In this context, market value is not merely accepted—it is mandatory. This is consistent with the OECD standards adopted by Costa Rica.
- Foreign Exchange Differences: Assets and liabilities denominated in foreign currency must be updated using the current exchange rate, and the resulting exchange gain or loss does have tax consequences. This makes sense because exchange-rate differences are observable, objective, and verifiable daily through the Central Bank rather than being estimates.
Temporary Differences and Tax Reconciliation: The Double Accounting to Come
This provision creates a permanent gap between financial and tax accounting, which in technical terminology is called temporary differences. A company that keeps its books under IFRS will have to maintain two parallel records or make off-book adjustments when preparing its tax return — which is known as tax reconciliation—. Thus, the income statement presented to shareholders can be very different from the taxable base declared to the Treasury; and both are correct, but under different frameworks. That is why its publication is a great success.
The repair: the resolution creates generating facts that the law does not contemplate
However, I must warn that the resolution goes too far by creating generating facts that cannot be created through this channel, and which will surely lead to litigation that taxpayers will bring against this rule, which, being mandatory for officials, will generate differences in taxes due to the application of a resolution that contradicts or exceeds the law, something that is not permitted by the principle of legality basic, which grants the Legislative Assembly the power to legislate and not the General Directorate of Taxation. I propose two cases:
VAT on usual discounts
Regarding Value Added Tax (VAT), the resolution requires VAT to be calculated on “the sum of the selling price of each item,” even when the transfer is partially gratuitous. However, Article 12 of the law expressly excludes ordinary and general discounts shown on the invoice from the taxable base. Consequently, the resolution would be expanding the taxable base through interpretation, in violation of the principle that taxes may only be imposed by law, effectively imposing VAT on ordinary discounts.
2. Dividends from non-domiciled companies
Furthermore, regarding income tax, the resolution provides that dividends received from non-resident companies “must be included in the taxpayer’s gross income and shall be subject to income tax.” This is unlawful because non-taxable income—which would include dividends received from shares in foreign companies—does not form part of the taxable base for the corporate income tax.
These are merely two examples (there are others) of how the resolution creates new taxable events and taxes transactions that are not taxed under the law. It would be advisable to review this resolution and make the necessary adjustments in order to avoid overwhelming the courts with new cases once it enters into force in January 2027.
Francisco Villalobos