Earlier this month, the Costa Rican General Direction of Taxation (DGT or Dirección General de Tributación, in Spanish) released draft rules for annual transfer pricing for public consultation. Originally enacted in 2013, Decree 37898-H protects the principle of 'free competition'.

Costa Rica's transfer pricing rules follow guidelines set by the Organization for Economic Cooperation and Development (OECD), which require taxpayers to apply the following transfer pricing methods:

  • comparable uncontrolled price method
  • resale price method
  • cost plus method
  • profit split method, and
  • transactional net margin method

The filing requirements are applicable to individuals and business entities that conduct intercompany transactions and fit into one of the following categories:

  • A natural or legal person that directs or controls another natural or legal person or held, directly or indirectly, at least 25% of its share capital or voting rights.
  • Five or fewer people direct or control both legal persons or possess, as a whole, directly or indirectly, at least 25% stake in the share capital or both people's voting rights.
  • Legal entities constituting a same decision unit or that belong to a related company.
  • Two or more legal entities forming a decision unit each, regarding a third legal entity.

Businesses operating under free trade zone regimes, 'large taxpayers' and multinationals engaged on domestic cross-border transactions with related parties also need to comply with rules.

What should I do?

Taxpayers must submit the required information electronically on the last day of June every year; which must be consistent with the taxpayer's transfer pricing study. The first transfer price return is due on June 2017, and should be based on the 2015 fiscal year. Taxpayers who do not comply will face a penalty equivalent to 2% of gross income for the previous fiscal year.

If the resolution gets approved, businesses operating in Costa Rica must review all the current transactions to determine whether they comply, and make sure to have the relevant supporting documentation that may be needed for future intercompany transactions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.