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Transfer pricing New Rules

Decree 37898-H, published September 13th, 2013, contains the new Transfer Pricing rules for Costa Rica.  The Decree applies as of FY 2013 and clarifies how transactions between related parties should have been treated so the Tax Authority could apply the same oversight and analysis criteria prior to publishing the Decree.

The new regulation follows international OECD models and aims to limit tax evasion through rate manipulation, and also seeks to offer greater legal certainty to taxpayers as well as to the Tax Authority.

This new regulation suggests that companies determine which transactions could be subject to Treasury assessment and then decide whether to submit the 2013 tax statement with or without changes to avoid possible audits later on.

With the new regulation in full force for FY 2014, a formal transfer pricing study will be required for companies.  According to the Decree, companies must indicate when such study will be submitted to the Tax Authority, which will be communicated through a resolution to be published shortly by the Tax Administration.


Transfer pricing is the rate agreed between two companies to transfer, between themselves, goods, services or rights. This rate is relevant in the tax environment when entities that agree such pricing are related to each other through ownership or management ("related” entities), where pricing is not decided under the same conditions as with un-related companies ("third parties" or "independent"). In such case, if the rate differs from what the open, competitive and restriction-free market price would have been, benefits would be distributed between the related entities in a manner that could be artificially favorable to one of the entities.  That is, a company could charge another company in its group higher or lower rates than competitive market prices, depending on where the business group is strategically planning to accumulate profits, which could affect the collection interest of a given tax authority.

So, for transactions between related entities, transfer pricing of goods, services or rights does not always follow market economy rules, that is, it is not always regulated by supply and demand.  Therefore, tax-related transfer pricing regulations have been developed worldwide over the last two decades to ensure, for countries with such regulations in their legal systems, that their income tax receipts are the highest possible within eminently technical and globally accepted rules.


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