The obligation to document transactions with related parties for Costa Rican taxpayers has been in force by Decree since 2014 and was also included in the Income Tax Law in 2018, through the Law on Strengthening Public Finances, No. 9635.

Despite the existing obligation, there are still many companies whose annual transfer pricing study has not been carried out, thus being able to expose themselves to sanctions by the tax authorities of up to 2% of gross income with a maximum of 100 base salaries, this in case the TA requests the study, and this is not delivered by the taxpayer within the established deadlines.

The Income Tax Law ("LISR") in its Article 81-Bis of Title V establishes the provisions that generally regulate Transfer Pricing, and states that Taxpayers who enter into transactions with related parties, are obliged, for purposes of Income Tax, to determine their income, costs and deductions considering for these operations the prices and amounts of the considerations,  which would be agreed between independent persons or entities in comparable transactions, in accordance with the arm's length principle and the principle of economic reality.

For the above, in JA Del Rio Costa Rica, we can prepare the transfer pricing study, but beyond this, it is highly recommended to do it as follows:

• Review together the transactions that are had with the related parties.
• Perform the preliminary TP study, that is, if the closure is December, a cut to August or September can be used, to be able to identify any adjustments that can be made within the year.
• Once the fiscal period is over, carry out the final study before having the accounting closed completely, this in case a new adjustment must be made.

This allows companies to have adequate compliance, and above all to be able to reflect the adjustments in the accounting within the accounting period, thus avoiding differences or adjustments only for tax issues, but that are not reflected in the accounting, which are practices that have been occurring incorrectly.

The content of this newsletter is merely informative, that´s why it cannot be used under any circumstances as advice on the matter described in it. If you need advice on any of the aspects discussed, our team of professionals will be willing to assist you. contacto@jadelrio.com