Costa Rica: The Strategic Importance of the Transfer Pricing Study (Local File) for Multinational Enterprises

In an increasingly complex international trade environment, transfer pricing is a critical aspect for multinational enterprises, as it involves the transfer of goods, services, and intellectual property among their various business units located in different jurisdictions. In this regard, the Transfer Pricing Local File, which contains specific information on transactions between related parties, has become an increasingly important tool for Tax Administrations.

In this sense, the Local File is essential for companies not only because it fulfills a legal obligation established by Tax Authorities but, more importantly, because it constitutes a key tool for Tax Administrations in determining whether to initiate an audit and defining its scope. Non-compliance may result in monetary penalties.

Therefore, the Local File plays a fundamental role in risk management, regulatory compliance, and resource optimization for multinational enterprises. By ensuring transparency and proper documentation of related-party transactions at the local level, companies can mitigate risks, avoid tax contingencies, and enhance their corporate reputation.

Initially, information on related-party transactions was primarily governed by the provisions of the Tax Code and regulatory decrees. The required documentation was relatively basic and consisted of information on intercompany transactions and the methodology used to determine transfer prices.

Over time, tax legislation has aligned with the OECD Transfer Pricing Guidelines, particularly since July 2019, when the concept of transfer pricing was formally incorporated into the Income Tax Law and its corresponding regulations. Additionally, local regulations have adapted to the new documentation requirements introduced under the BEPS Project, particularly Action 10. This has led to increased sophistication in the preparation of the Local File, including the need for more detailed information, benchmarking analyses, and justification of the transfer pricing policies adopted by companies.

Currently, the Local File requirements are reflecting international standards and promoting greater tax transparency and to include information such as the organizational structure and a detailed description of the taxpayer’s business lines, activities, and strategies. They also cover related-party transactions, including descriptions, transaction amounts, identification of counterparties, detailed functional analyses, selection and justification of the most appropriate transfer pricing method, and a list and description of comparable transactions (internal or external), where applicable. This has also included the introduction of the specific Transfer Pricing Return (Form 273), effective as of fiscal year 2024, as well as expanded reporting obligations such as the Country-by-Country Reporting and the Master File.

With the aim of combating tax evasion and ensuring compliance with transfer pricing regulations, Tax Administrations across the region have intensified their audit efforts. This has resulted in increased scrutiny over the accuracy and reliability of information reported in the Local Files and related returns, leading to more rigorous audits that have generated additional tax assessments and more substantial penalties for non-compliance with proper transfer pricing practices.

Considering the above, it is essential for companies not only to comply with all formal Local File requirements -including the timely and accurate submission of information- but also to maintain comprehensive and robust documentation supporting their transfer pricing policies and related-party transactions. This should include contracts, invoices, benchmarking analyses, comparability studies, and any other relevant documentation that substantiates the nature and value of intercompany transactions.

It is therefore crucial to conduct detailed and rigorous analyses to support the transfer pricing policies adopted by the company. This may involve performing thorough comparability studies to demonstrate that the pricing and conditions of related-party transactions are consistent with those observed under arm’s length conditions.

It should also be noted that transfer pricing documentation must be regularly updated to reflect changes in business operations, economic conditions, and tax regulations. This ensures that the information provided remains relevant and up to date in the event of a tax audit.

In summary, companies must take proactive measures to ensure that their Transfer Pricing Local File is complete, accurate, and up to date. This will enable them to successfully face potential tax audits and comply with applicable tax regulations.

Reference/Citation

1. Costa Rica. (2021). Reforma al Reglamento a la Ley del Impuesto sobre la Renta (Decreto Ejecutivo N.º 43198-H).
2. Costa Rica. (2026). Ley del Impuesto sobre la Renta, Ley N.º 7092.
3. OECD. (2024). Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (Updated). OECD Publishing

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