The correct determination of the value of economic transactions is an essential principle of the tax system. In Nicaragua, Article 6 of the Tax Agreement Law (LCT) establishes that goods, rights, or services subject to taxation must be valued according to their “normal market value,” that is, the price that would have been agreed upon between independent parties acting freely under normal conditions of competition.
In this context, it is important to differentiate between two types of transactions:
- Those carried out between related parties.
- Those between unrelated parties.
This distinction has specific effects on the regulatory framework applicable to determining whether the value declared by the taxpayer is in line with reasonable parameters.
In the case of transactions between related parties, the Tax Coordination Law itself devotes a specific chapter to transfer pricing (Articles 93 to 106), expressly establishing the accepted valuation methods, all of which are in line with international standards.
These methods include the Uncontrolled Comparable Price, Resale, Cost Plus, Net Transaction Margin, and Profit-Sharing methods. The General Revenue Directorate (DGI) is empowered to verify compliance with these methods and adjust if the requirements and criteria established therein are not met. If the taxpayer complies with these legal provisions, the authority should accept the values declared.
On the other hand, in transactions between unrelated parties, the legal framework applicable to assess whether a transaction reflects its market value is more limited. There are no provisions in current legislation that expressly establish or regulate technical methodologies for determining this value. Therefore, in the absence of specific provisions, the general principles of tax law must be used.
In these cases, the only express legal basis for the authority’s determination is found in Article 160 of the Tax Code, which allows determination on a presumptive basis only when there are no books, records, or documents, or when those that exist are insufficient or contradictory. Even in these scenarios, the use of presumptions must respect the principles of legality, reasonableness, proportionality, and motivation, and therefore be based on proven facts and objective criteria.
To this end, complementary rules may be used to guide the reasonable valuation of transactions, without this implying a broad authorization to replace the values validly agreed between independent parties. These include, for example, the provisions of the Commercial Code on commercial customs, or the rules of evidence in the Civil Procedure Code. In the business sphere, the principles of freedom of contract in economic matters and free competition are also relevant.
Regulatory clarity and respect for the fundamental principles of tax law are essential to ensure legal certainty, tax fairness, and predictability in economic relations. Nicaraguan law already regulates valuation methodologies for transactions between related parties. However, in the case of transactions between unrelated parties, the absence of express and clear provisions could justify more precise regulation of valuation methodologies for these cases. In the meantime, the tax authority may exercise its powers of control over these transactions based on the objective elements of the legal framework outlined above.