Costa Rica: How COVID19 impacts Transfer Pricing?

Written by:

Rafael Luna 


The health emergency now extended to an economic crisis, has a major impact on local and international business groups, in many cases forcing them to conduct changes and even taking drastic decisions which allows the maintenance or subsistence of the business. Many of those changes are related to imminent issues such as the sensible management of cash flow, and others are extended to structural decisions of medium and long term impact which may even derive to the rethinking of the company´s business model. Some of these changes may be, among others: 


– Reduction of the working time, suspension of labor contracts, or even dismissal of employees.

– Closing of production lines, decrease or cease of the production.

– Changes in the value or supply chain, or products and/or services catalogs.
– Modifications or termination of sales contracts or sale or purchase of goods and services contracts.
– Review the terms of any type of loan or financing agreement.

– Noncompliance or unilateral deferral of the payments.

In case any of these changes occur among related entities, it may have an impact on assumed functions, assets utilized, and specially in the risks assumed by the company in relation to the group. In other words, all the factors that determine the characterization of the company, which implies a direct impact in the determination of the Transfer Pricing, through the selected methods and the companies which are comparable, especially if much of them also are in a situation by which they suffer a decrease in their income or losses.


Nevertheless, the OCDE has recognized regarding the Transfer Pricing, that Furthermore, business restructurings may be needed to preserve profitability or limit losses, e.g. in the event of an over-capacity situation or in a downturn of the economy.”

Additionally, it is worth mentioning that according to the Transfer Pricing Guidelines, which are the base of our local regulation, the economic environment must be considered in the Transfer Pricing analysis. This since, temporary or permanent distortions may cause a dynamic in the company that is not related to the pretension of obtaining a tax benefit, rather to sustain the business.

Notwithstanding the foregoing, when one of the circumstances mentioned previously occurs, it is mandatory to conduct special measures related to the adequate documentation of the justification and necessity, as a follow up to the crisis evolution and the impact in the company´s economic situation, the news, the reports, agreements and instructions to deal with the situation, as well as all the corresponding documents.

Scroll to Top