Worldwide transfer pricing reference guide 2014

Costa Rica (continued)
Return disclosures/related party disclosures
Related party disclosures have to be made in specific transfer pricing returns. There are no related party disclosures that are to be made
on general income tax returns.
Transfer pricing-specific returns
There is an annual obligation for taxpayers to file a Transfer Pricing Information Return under the following situations: i) taxpayers
conducting cross-border and local related party transactions, and ii) such taxpayers are categorized as big taxpayers or “grandes
contribuyentes” or individuals or entities under the Free Zone Regime.
The forms, mechanisms and due dates are pending to be issued by the DGT.
Frequency of tax audit and transfer pricing scrutiny by the tax authority
The risk of a general tax audit is currently categorized as high, especially for taxpayers characterized as “big taxpayers” and
multinational companies with related transactions. The risk of transfer pricing assessments as part of a general tax audit is considered
high as well. In case transfer pricing is scrutinized, the risk that the transfer pricing methodology will be challenged is also high. As of
today, the DGT has been very aggressively trying to apply only the CUP method.
Although the TP Executive Decree was recently published, transfer pricing has been part of the Costa Rican tax environment for the
past 10 years.
Before the TP Executive Decree, there were no official transfer pricing rules in Costa Rica. Technically, to date, the Income Tax Law
or the Tax Code of Standard and Procedures do not include any specific transfer pricing provision. Not even the general arm’s length
principle is codified. However, in an internal directive from 2003 (DGT–20–03), the DGT instructed its auditors to examine inter-company
transactions under the general economic reality and substance over form principles defined under sections 8 and 12 of the Tax Code
of Standards and Procedures and apply general transfer pricing principles. Even though there were no official regulations nor any kind
of technical references or guidelines for the taxpayers, tax auditors reviewed and challenged related party transactions of primarily
many multinational companies as well as some large local entities in Costa Rica. This resulted in very complex, confusing and especially
expensive tax adjustments for the companies doing business in the country. These actions of the DGT were endorsed by several rulings
from administrative and judicial courts, as well as from the Constitutional Chamber of the Supreme Court.
There was an attempt to pass transfer pricing legislation through Congress in 2012, but since it was included as part of the last tax
reform package, it was also repealed after the whole law was declared unconstitutional by the Constitutional Court. However, despite the
lack of a law regulating transfer pricing, the Constitutional Court stated that transfer pricing rules could be applied by the DGT based on
sections 8 and 12 of the Tax Code of Standards and Procedures. A few months later, the TP Executive Decree was drafted and approved.
The TP Executive Decree is intended to formalize an administrative practice that has been in force for years and try to create a certain
level of legal certainty in relation to this subject matter, while a more comprehensive legislation is passed by the Congress.
APA opportunity
APAs are contemplated under the provisions of the TP Executive Decree. Taxpayers can request an APA for a maximum of three years.
However, the corresponding regulations have not yet been enacted.
Expected reaction to OECD Report on BEPS
As transfer pricing provisions in Costa Rica have just been enacted, there is no expectation of immediate or short term reaction
regarding specialized topics covered in the OECD Report on BEPS.
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