Transfer Pricing Obligation in Nicaragua

Transfer prices refer to the amounts set between related parties for the transfer of tangible and intangible goods or services. The guiding principle behind these is the “Principle of Free Competition“, which means that prices agreed upon between related parties cannot differ from those agreed upon by independent companies in similar operations and circumstances.

Nicaraguan legislation regulates transfer pricing in the Tax Concertation Law, applying to operations conducted between related parties, both resident and non-resident, including companies operating under the special regime of free trade zones. There are several criteria by which it is determined whether companies are related, such as:

    1. Common shareholding.
    2. Voting rights.
    3. Decision-making capacity over companies.
    4. Kinship relations.
    5. Business association.

It is important to note that current tax legislation establishes the obligation for taxpayers to have sufficient information, documents, and analysis to assess their transactions with related parties at the time of filing their annual income tax return. In this regard, the General Directorate of Revenues (DGI) may request taxpayers to provide their updated transfer pricing studies and all supporting documents related to transactions with related companies at any time. Failure to comply with this requirement may result in penalties and tax adjustments for the taxpayer. Therefore, it is important to review the availability of this information and documentation, as well as the validity of transfer pricing studies.