The subject of transfer pricing in Costa Rica has been marked by several relevant facts: in the first instance with Interpretative Directive 20-03 in 2003; then, with the publication of the Transfer Pricing Regulation, the Decree 37898-H and in the last quarter of 2016 the last evet of real importance occurs: the publication of Resolution DGT-R-044-2016 governing the presentation of information statement of transfer pricing.

In the previous edition, we have indicated that as stated in the same text “Considering”, the Transfer Pricing Regulation is based on Articles 8 and 12 of the Tax Standards and Procedures Code, which indicated in Article 8 thereof that the Tax Administration may dispense with the legal figures adopted by the taxpayer, if the income tax base and in conjunction with Article 12 indicates that elements such as the taxable person or the generating event cannot be varied as a result of agreements between individuals, which would not be eligible of Tax authority.

For the purpose of the Tax Administration, the application of transfer pricing rules is based on the need to prevent to taxpayers from eroding the income tax base thought transaction that occur in companies’ economic group. The Decree 37898-H of September 2013 regulates both transactions between related party that are domiciled in the same country, as well as transactions that occur between the company of country and another related party companies that is abroad.

It is important to consider that the study will be applied to those group companies that have been considered to related party and that have made income, costs or expense transactions between them. The linking criteria are set out in Article 4 of the Transfer Pricing Regulation.

It should be noted that in the previous years the publication of Regulation 37898-H, or even after publication, the have been audits of transfer prices. The previous of publication of the publication of the regulation were developed in different administrative authorities and even in the Dispute Tribunal. Most of these cases were resolved in favor of the Tax Administrative, which, in our view, was the case in this way due to the lack of sufficient technical evidence to debate the arguments of the Tax Administration. Post-publications audits of the regulation are in the process of resolving administrative proceedings.

As we stated previously, based in the wording of the articles of Tax Standards and Procedures Code indicated and based in the wording of Directive 20-03, the Tax Administrative initiated the application of transfer prices. This without having defined any methodology for its implementation and thus initiated audits and adjustments to taxpayers.

When we refer to defining a methodology, it is precisely the application of the methods established of OECD, namely:

  1. Uncontrolled comparable price
  2. Resale price
  3. Additional cost
  4. Share profit
  5. Transactional net margin

That guideline was subject to multiple questions and on 22 December 2010 a taxpayer brings an action of unconstitutionality which was resolved without place by the Constitutional Chamber on the 18 April 2012. The argument in summary of the Constitutional Chamber was as follows

"Conclusion. The contested directive does not establish or impose a single method of transfer price analysis, so that, in the absence of a law, the autonomy of tax law allows the tax to be paid to be paid to the provisions of Articles 8 and 12 of the Code of Tax Rules and Procedures, without prejudice to the support of other techniques-better. The important thing is that the contested Interpretative Directive does not seek to eliminate multiple other scenarios arising from different forms of organization of undertakings, but is aimed at transfer prices between affiliated undertakings While the legislature may adopt a particular technique or several to regulate certain business conduct, or recognize legal practices to reduce taxes, it is possible to admit that if there are frictions with tax legislation and reality, in the absence of a law, ultimately it is for the judge to decide the correct application of the technical standards. Thus, in the absence of particular legislation, this fact does not prevent the parties to the conflict from being able to present their arguments, produce the evidence and demonstrate the need to apply other criteria to displace the technical standard adopted by the guideline, or otherwise possible method, a situation which obviously makes the discussion a matter of ordinary legality. For all the above, the action must be declared without place, as is indeed done."

The Chamber's resolution does not point to any issues on the methodology to be used, being specific to the technical methods established by the OECD to analyze whether a transaction falls within the ranges that are considered as market values. The tax authorities itself did not apply any of the methods provided technically by the OECD, nor is it referred to in the resolution of the Constitutional Chamber. It is in this way that the audits and adjustments made by the Tax Administration begin or are supported and thus ratified the resulting adjustments with large amounts of income tax left unpaid at the discretion of the Administration and consequently, the sanctions and interest that corresponded.

There is currently no law that has been enacted by the country's Legislative Assembly and, therefore, the transfer pricing matter is governed by the provisions of Executive Decree 37898-H, published on 13 September 2013. Despite not having the respective law, the guidelines outlined in the executive decree are of paramount importance, since there is the detail of the taxpayers who are obliged to prepare a transfer price study , who must submit the information statement, binding definitions, methods to be applied and other concepts that are important for governing this matter. As well as, that the established there is both for the compliance of all taxpayers and for the establishment of the framework of action of the same Tax Administration.

This is undoubtedly a great advantage especially for taxpayers, as it defines the framework for action to carry out reviews and establishes clear rules regarding the application of methods that are in line with the criteria of the Organization Economic Cooperation and Development (OECD).

This regulation resolves the fact in the previous ten year to its publication, the audits were based on an interpretive guideline of the Tax Administrative.

Despite the audits and adjustments that were carried out prior to the issuance of the executive decree, there is actually very little experience in the country about the application of transfer prices, both for taxpayers who generally do not know of the application technique and what are the objectives that are sought, as for the Tax Administration, whose work has been the preparation of its staff and build the necessary structure that will be attending the subject in the coming years.