The legal systems recognize the exercise of economic activities under the principle of freedom of trade and, therefore, the free choice in the configuration of legal business, both in the object and in its elements, including the price freely determined by the parties for the goods or services they contract with each other.<\/span><\/p>\n However, despite the recognition of this freedom, in tax matters, there is the possibility of <\/span>distrust the levels of freedom<\/b> in which the parties deal, if the same parties in a contract belong to the same economic interest group.<\/span><\/p>\n As noted by a Costa Rican Court since 2012:<\/span><\/p>\n \"All the more so because in the case of an economic group, deductions must be viewed with great care and under reasonable tax distrust\" TCA Secc 4 No 94 - 2012.<\/span><\/p><\/blockquote>\n This distrust is natural in our daily lives: we distrust each other, that's why we have keys, safe deposit boxes, contracts and lawyers. It is only logical that the tax authorities also distrust our transactions when they are part of a group of related companies.<\/span><\/p>\n For tax purposes, it would be neither realistic nor prudent to set prices between related companies under a different criterion than that which would be set by two unrelated parties. Therefore, it is important to understand the rules of Transfer Pricing.<\/span><\/p>\n Transfer Pricing refers to those margins or prices that are agreed between related companies for the purchase of goods or services. However, these prices that are agreed between related companies must reflect the reality of the market, so that these operations are carried out in the same way as they would be carried out with independent third parties, that is, companies with which there is no type of relationship.<\/span><\/p>\n Transfer Pricing and its regulations are in compliance with the <\/span>principle of free competition<\/b>which dictates that companies must operate based on the prices established by the market, so that there is no manipulation that could result in anti-competitive practices or lower taxation by taxpayers.<\/span><\/p>\n For this reason, it is essential to understand the nature, risks and strategy of each intercompany transaction, as this will help to define a transfer pricing policy that complies with the principle of free competition.<\/span><\/p>\n Transfer Pricing represents one of the most relevant tax issues for national and international companies and organizations, since more and more Tax Administrations around the world are implementing tax adjustments based on these obligations.<\/span><\/p>\n In essence, this regulation seeks to:<\/span><\/p>\n KEY BOX<\/b><\/p>\n At Costa Rica<\/a> Adjustments are applied based on the DGT's questioning of the prices charged by related parties for goods and services, even when the two companies belonging to the same group pay the same tax rate (30%) in Costa Rica.<\/span><\/p>\n More than a decade ago in Costa Rica the subject of Transfer Pricing began to be addressed, when the authorities discussed the importance of applying regulations to ensure that transactions between related parties adhere to the Principle of Free Competition.<\/span><\/p>\n Although Transfer Pricing was born in the world to regulate cross-border transactions, today it is used to question transactions in the same territory between related parties. Prior to the existence of the current article 81 bis of the Income Tax Law, the legal basis for adjusting transactions between related parties was the principle of economic reality established in numeral 8 of the Code of Tax Rules and Procedures:<\/span><\/p>\n \"The legal forms adopted by taxpayers do not bind the interpreter, who may attribute to the situations and acts occurred a meaning in accordance with the facts, when it appears from the tax law that the event giving rise to the respective obligation was defined according to reality and not to the legal form.<\/span><\/p>\n When the legal forms are manifestly inappropriate to the reality of the taxable events and this results in a decrease in the amount of the obligations, the tax law must be applied dispensing with such form.\"<\/span><\/p><\/blockquote>\n Source: Own elaboration<\/span><\/i><\/p>\n The regulations affect <\/span>all taxpayers that carry out transactions with related parties<\/b>regardless of the amount of the transactions.<\/span><\/p>\n It is important to review the parameters with which the regulations define related parties, since it is their operations that are relevant for the tax authorities. A company can identify as a related party the persons or companies that comply with any of the following situations:<\/span><\/p>\n In addition, a natural person is also considered to have a share in the capital stock or voting rights when the ownership of the share corresponds to the spouse or to a person with whom he\/she is related by blood up to the fourth degree or by affinity up to the second degree.<\/span><\/p>\n The Directorate General of Taxation has submitted for consultation until February 25 the resolution to require certain taxpayers to file a Transfer Pricing information return. This change will be effective within weeks.<\/span><\/p>\n The informative statement of Transfer Pricing will be required to those taxpayers that carry out transactions with related parties and qualify in any of the following situations:<\/span><\/p>\n According to resolution DGT-R-22-2021 dated June twenty-second, two thousand and twenty-one <\/span>\"Criteria for the classification of large national taxpayers.\"<\/span><\/i>quantitative and qualitative parameters are used:<\/span><\/p>\n Quantitative parameters:<\/b><\/p>\n Qualitative parameters:<\/b><\/p>\n According to the project, the first informative statement, corresponding to 2024, would be filed 6 months after the publication of the Resolution in the Gazette (estimated for March 2025). For 2025 and subsequent fiscal periods, the statement will be filed within three months after the end of the fiscal period.<\/span><\/p>\n In Costa Rica, the law requires that taxpayers that have carried out intercompany transactions must document and support their transactions, margins and agreed prices by means of:<\/span><\/p>\n They correspond to reports that describe and detail the taxpayers' operations. Specifically, Transfer Pricing Studies analyze both descriptive and quantitative aspects of the Company's operation to identify market values for transactions comparable to those it has carried out with related parties.<\/span><\/p>\n Based on these reports, it will be possible to analyze whether the related party transactions carried out by the taxpayer comply with the arm's length principle, or whether there are risks of non-compliance and how to mitigate them.<\/span><\/p>\n Having Transfer Pricing Studies is an obligation for all taxpayers that enter into transactions with related parties, regardless of the amount or volume of these transactions.<\/span><\/p>\n The Master File is a mainly descriptive document that details the structure of the Economic Group, internal policies of the Group, nature and risks of the related operations. This document allows the Tax Authorities to have a broad perspective of the functioning of the Multinational Group.<\/span><\/p>\n It corresponds to a report that seeks to show fiscal transparency for those Multinational Groups whose consolidated income accumulates an amount of $750 million. This makes it possible to identify the way in which the Groups manage their economic activity and to analyze if there is any contingency or erosion of the tax base that results in a lower tax payment.<\/span><\/p>\n It is important to note that the Country-by-Country Report must be filed by the Parent Company of the Group in the jurisdiction where it is a taxpayer. If in Costa Rica there is a company member of a Group subject to the filing of this report, but whose Head Office is located in another jurisdiction, the Costa Rican Company must send a notification to the Tax Administration stating that at the Group level it is already complying with this obligation.<\/span><\/p>\n As mentioned above, the mandatory filing of the annual Transfer Pricing informative return has been the most important novelty in this matter during the last few weeks. This return will document relevant information on all intercompany transactions carried out by taxpayers subject to this obligation, such as amounts, Transfer Pricing methods and nature of each of the transactions carried out.<\/span><\/p>\n As mentioned above, all companies that have entered into transactions with related parties are required to have documentation to support these transactions.<\/span><\/p>\n In case the taxpayer fails to provide the information, he\/she is exposed to a fine of up to \u20a146,200,000, while if the information is provided with errors, a fine of \u20a14,622 will be applied for each incorrect record.<\/span><\/p>\n In addition, apart from the fines to which the taxpayer is exposed for failure to provide information, in the event that the Tax Administration finds that the intercompany operations carried out do not comply with the principle of free competition and a lower tax payment is being made, it may apply adjustments. Specifically in these cases, the Tax Administration may reclassify the income tax return and increase the tax burden paid.<\/span><\/p>\n A clear example of the importance of adequately supporting and documenting intercompany transactions can be identified in Resolution No. 000383-S1-2022. This corresponds to a case in which the Tax Administration made a Transfer Pricing adjustment to a taxpayer, upon determining that there was an erosion of the taxable base due to non-compliance with the arm's length principle.<\/span><\/p>\n In this case, the Tax Administration concluded that the Transfer Pricing Study submitted by the taxpayer was not applying the appropriate Transfer Pricing method to correctly assess the comparability of the transaction subject to analysis, so it could not adequately justify the Transfer Prices established.<\/span><\/p>\n For its part, the Tax Administration, through the evaluation of these operations, determined the market values at which the operations should have been carried out and imposed a fine of 25% of the unpaid tax, which resulted in a total of \u00a298,659,706.<\/span><\/p>\n It should be noted that the taxpayer filed an appeal alleging that the Transfer Pricing method used by the Tax Administration was not the most adequate to evaluate the transactions since it did not consider the particularities of the market. However, this appeal was not accepted and the Court ruled in favor of the Tax Administration, since the taxpayer did not have sufficient documentation to defend its position and justify the application of the Transfer Pricing method they proposed to use.<\/span><\/p>\n Despite being an obligation, in practice we have found strategic value in the information that must be collected to conduct a pricing study. At its core, it allows us to look internally into our finances and ask ourselves whether we have the supporting documentation and whether our accounting figures are consistent with reality.<\/span><\/p>\n This is the same landing strip used by the tax authorities and banks to evaluate our financial performance. Therefore, even if a study is not required, all companies should have the information required for a study compiled, ordered and analyzed.<\/span><\/p>\n For example, when preparing the Master Report, documentation that describes the internal organizational structure of the economic group, its financing strategy, its intercompany transactions, among others, taxpayers develop a valuable profile to identify whether its financial statements and legal structures reflect what the partners want to project. It is a sort of strategic self-diagnosis that goes far beyond fiscal matters.<\/span><\/p>\n In this sense, it is possible to affirm that having all the Transfer Pricing documentation will not only reduce the risk of penalties and adjustments that may be applied by the Tax Administration for reasons of non-compliance, but will also favor business decision making through Transfer Pricing policies and commercial strategies that favor operational efficiency, in order to generate more business for the Group.<\/span><\/p>\n Yes, in Costa Rica adjustments are applied based on the DGT's questioning of the prices charged by related parties for goods and services, even when the two companies belonging to the same group pay the same rate (30%) in Costa Rica.<\/span><\/p>\n Yes, having Transfer Pricing Studies is an obligation for all taxpayers that enter into transactions with related parties, regardless of the amount or volume of these transactions.<\/span><\/p>\n The Tax Administration accepts the methods recommended by the OECD, including:<\/span><\/p>\n As seen in the case of Resolution No. 000383-S1-2022, without adequate documentation to support the methods used, appeals against the Tax Administration's adjustments will likely fail, and both the adjustments and the penalties imposed will be upheld.<\/span><\/p>\n Transfer Pricing regulations in Costa Rica continue to evolve, and the new informative statement represents a significant step towards greater oversight in this area. For Costa Rican companies that have transactions with related parties, preparing adequately is not only a matter of legal compliance, but also a strategic opportunity.<\/span><\/p>\n It is essential to understand the nature, risks and strategy of each intercompany transaction in order to define a transfer pricing policy that complies with the principle of free competition and avoids adjustments by the Tax Administration.<\/span><\/p>\n Don't wait until the last minute. Planning ahead will not only make it easier to comply with your obligations, but will also allow you to take advantage of the strategic benefits that a good transfer pricing analysis can offer your company.<\/span><\/p>\n Last update: March 2025<\/span><\/i><\/p>\n Note: This article is for informational purposes and does not constitute legal or tax advice. Consult a specialist for specific guidance for your case.<\/span><\/i><\/p>\nWhat is Transfer Pricing?<\/b><\/h2>\n
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Regulatory Development in Costa Rica<\/b><\/h2>\n
Evolution of Transfer Pricing Regulations in Costa Rica<\/b><\/h3>\n
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\n Date<\/b><\/td>\n Standard or Resolution<\/b><\/td>\n Type of Standard<\/b><\/td>\n Name<\/b><\/td>\n Main Objective<\/b><\/td>\n<\/tr>\n \n June 10, 2003<\/span><\/td>\n Guideline 20-03<\/span><\/td>\n Interpretative Guideline<\/span><\/td>\n Tax Treatment of Transfer Pricing, at Fair Market Value<\/span><\/td>\n Ensure compliance with the principle of free competition<\/span><\/td>\n<\/tr>\n \n June 5, 2013<\/span><\/td>\n Decree No. 37898<\/span><\/td>\n Executive Order<\/span><\/td>\n Transfer Pricing Provisions<\/span><\/td>\n Regulating related party transactions through reporting and documentation obligations<\/span><\/td>\n<\/tr>\n \n August 26, 2016<\/span><\/td>\n N\u00ba DGT-R-44-2016<\/span><\/td>\n DGT Resolution<\/span><\/td>\n Transfer Pricing Information Statement<\/span><\/td>\n Obliging taxpayers to support related-party transactions through annual information returns<\/span><\/td>\n<\/tr>\n \n May 23, 2017<\/span><\/td>\n N\u00b0 DGT-R-28-2017<\/span><\/td>\n DGT Resolution<\/span><\/td>\n Reform Resolution \"Informative Transfer Pricing Statement\".<\/span><\/td>\n Report the suspension of the annual informative statement.<\/span><\/td>\n<\/tr>\n \n January 8, 2018<\/span><\/td>\n N\u00b0 DGT-R-001-2018<\/span><\/td>\n DGT Resolution<\/span><\/td>\n Reform Provision of information for the automatic exchange of tax information, in accordance with the OECD Country by Country report.<\/span><\/td>\n Define mandatory Country-by-Country Reporting for Multinational Groups with consolidated revenues equivalent to 750 million euros.<\/span><\/td>\n<\/tr>\n \n December 3, 2018<\/span><\/td>\n Article 81 bis of Law No. 9635<\/span><\/td>\n Article of Law<\/span><\/td>\n Strengthening Public Finances<\/span><\/td>\n Define the obligation to carry out related party transactions in accordance with the arm's length principle.<\/span><\/td>\n<\/tr>\n \n August 22, 2019<\/span><\/td>\n DGT-R-49-2019<\/span><\/td>\n DGT Resolution<\/span><\/td>\n Transfer Pricing Study Documentation<\/span><\/td>\n Provide information requirements and methods with which taxpayers must comply with<\/span><\/td>\n<\/tr>\n \n July 22, 2021<\/span><\/td>\n Regulation No. 43198<\/span><\/td>\n Regulation<\/span><\/td>\n Regulations of the Income Tax Law<\/span><\/td>\n To detail the provisions established in the Income Tax Law.<\/span><\/td>\n<\/tr>\n \n March 16, 2021<\/span><\/td>\n DGT-R-14-2021<\/span><\/td>\n DGT Resolution<\/span><\/td>\n Guidelines for the Processing of Advance Pricing Agreements<\/span><\/td>\n Establishes the development of advance pricing agreements to ensure compliance with the principle of free competition.<\/span><\/td>\n<\/tr>\n \n Currently in public consultation<\/a><\/span><\/td>\n MH-DGT-RES-000-2025<\/span><\/td>\n Resolution MH-DGT<\/span><\/td>\n Resolution Regarding the Filing of the Declaration Informative on Pricing<\/a> Transfer<\/span><\/td>\n Obliging taxpayers to support related-party transactions through annual information returns<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n Who is Affected by Transfer Pricing Regulations?<\/b><\/h2>\n
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What Does the New Resolution Determine?<\/b><\/h2>\n
Who must file the informative statement?<\/b><\/h3>\n
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Criteria for classifying taxpayers as Large Taxpayers<\/b><\/h3>\n
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When should the return be filed?<\/b><\/h3>\n
Transfer Pricing Documentation Requirements<\/b><\/h2>\n
Transfer Pricing Studies<\/b><\/h3>\n
Master Report<\/b><\/h3>\n
Country by Country Report<\/b><\/h3>\n
Transfer Pricing Information Statement<\/b><\/h3>\n
Penalties for Non-Compliance<\/b><\/h2>\n
Case Study: Resolution No. 000383-S1-2022<\/b><\/h3>\n
Strategic Value of Transfer Pricing Studies<\/b><\/h2>\n
Frequently Asked Questions<\/b><\/h2>\n
Can adjustments be applied between companies paying the same tax rate?<\/b><\/h3>\n
Is the Transfer Pricing Study mandatory for all companies with related-party transactions?<\/b><\/h3>\n
What methods does the Tax Administration accept for Transfer Pricing analysis?<\/b><\/h3>\n
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What happens if I do not have the proper documentation in case of an audit?<\/b><\/h3>\n
Conclusion<\/b><\/h2>\n