Costa Rica requires that transactions between related parties, both local and foreign, be conducted in accordance with the arm’s length principle. In cases where transactions are deemed non-compliant, the tax authorities may make an adjustment.

Since 2013, with the publication of Decree 37.898-H, Costa Rica introduced into its domestic law the transfer prices rules, guidelines and methodologies established by the OECD. The new tax regime is applicable to related parties both residents are non-residents.

Definition of Related Parties

For transfer pricing purposes, related parties can include any of the following:

When one party controls or manages the other, or directly or indirectly holds at least 25% of the capital or voting rights of the other
When five or fewer people manage or control both companies, or directly or indirectly hold at least 25% of the capital or voting rights of both companies
When the companies constitute a single decision making unit where one party is a partner of or participates in the other company and:
- Holds a majority of the voting rights
- has the power to appoint or remove most of the members of management
- Is able to gain access to a majority of the voting rights
- Has used its votes to designate most of the management body
- Most of the member of management of the controlled company are the same as the controlling company or of another controlled company
- When two or more companies form a decision making unit in relation to a third company

In terms of direct or indirect ownership of capital, a person will be considered to have ownership of capital or voting rights if directly or indirectly held by a spouse or other direct relative.

Permanent establishments of a company are also considered related parties as are exclusive agents or distributors.

Transfer Pricing Methods

The transfer pricing methods available are based on the OECD guidelines. Costa Rica does not have a preferred method, and the most appropriate method for a given transaction should be used.

The methods include the following:

Traditional Methods:
- Comparable uncontrolled price (CUP) method
- Resale price method
- Cost-plus method
Transactional Profits Methods:
- Profit split method
- Transactional net margin method

Use and Availability of Comparables

Costa Rica allows for the use of both local and foreign comparables. When local comparables are insufficient, comparables from similar markets should be used, and adjusted as necessary to best reflect pricing conditions. Information from various databases is allowed.

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