The Transfer Pricing legislation establishes as an obligation the presentation of an informative declaration of taxpayers who carry out operations with related parties. One of the statements that taxpayers must make for the fiscal closing of this 2020 (December 31th), is about Transfer Prices Tax (Impuesto al Precio de Transferencia). These refer to the relationship that exists between prices of goods or services that are provided between two or more companies that have an economic, administrative or management relationship.
For example, if three companies have the same owner, no matter if they are inside or outside of Costa Rica and provide services to each other, these transactions are subject to an analysis to establish whether the values agreed between them correspond to those of the market, with which it would seek to avoid any erosion in the revenue collection of a certain country due to some transfer of benefits.
The transfer pricing legislation in Costa Rica establishes as a formal obligation the presentation of an informative return for those taxpayers who carry out operations with related parties and who meet certain criteria.
“Although no resolution has yet been published by the General Directorate of Taxation indicating the term and form of this declaration, the Transfer Pricing informative declaration should come into effect only this year 2020, to be declared in the year 2021. There would be no further deferral of this obligation since belonging to the OECD would be a urgent condition.
There is a second Transfer Pricing documentation known as the Country by Country Report, established for those parent companies residing in the country. Unlike the previous informative return, the Country by Country has been presented since 2019, so in the 2020 fiscal close it would be presented for the second consecutive time.
This report must contain information on the entire multinational group, such as a detail and identification of each of the entities that comprise it, the income of each entity, profits or losses before tax, and tax paid, among others.
Likewise, its presentation must be made using an XML file, which complies with the standard structure indicated by the OECD, and has a presentation date of December 31st of the following year.
This report is informative, so the taxpayer will not pay any tax. It should be noted that Costa Rica is under the BEPS guidelines of the OECD, so you will have to submit the informative returns with the following supporting documentation: Local Report, Master Report and Country by Country Report.
Recommendations for preparing the Transfer Pricing statement
The subjects obliged to prepare the Transfer Pricing Information Statement are those who carry out operations with related parties and are large taxpayers or who are under the Free Trade Zone regime. Those who carry out this type of operations and who separately or jointly exceed the amount equivalent to 1,000 base salaries in the corresponding year will also be obliged.
Regarding the Country-by-Country Report, the head offices resident in the country are obliged to have their global revenues amount to more than 750 million euros. In the case of Costa Rica, this declaration should only be submitted by three economic groups.
Given this, it is recommended preparing the necessary information to comply with these obligations in time, for five recommendations for taxpayers are provided:
- Establish transfer pricing policies.
- Perform prospective analysis regarding operations with related parties.
- Have highly specialized advisers in the matter, in order to resolve doubts.
- Have prepared the appropriate documentation regarding operations with related parties.
- Be clear about the expiration dates of the transfer pricing obligations, so that a violation is not generated.
Both the preparation of the declaration and the documentation of the Transfer Pricing have a certain degree of technical difficulty, which is why it is necessary to have a highly specialized accounting professional in the matter.
In addition, it is vitally important that companies make their declarations within the established deadlines, since there are fines for non-compliance, with which companies could have tax contingencies.
Failure to comply with the transfer pricing statements or documentation leads to a penalty equivalent to 2% of the gross income of the offender, in the period prior to that in which the offense occurred, with a minimum of three base salaries and a maximum of one hundred base salaries.