Transfer pricing in Nicaragua
Next June 30th, 2017, in Nicaragua will come into force the articles 93 to 106 of the Tax Concern Law that regulates the transfer pricing matters. The transfer pricing are a monitoring mechanism that has come into force in all the Central American region in the last 4 years, where the practice of preparing studies about this topic must be presented to the tax administrations in a mandatory character.
Transfer pricing is the value that two parts pact for a commercial transaction by purchasing good and services, that it’s subject to be reviewed by the Tax Administration with technique parameters established by the law.
The law in Nicaragua has been adapted according to the parameters used worldwide; regarding the mandatory subjects, the principles and the methods that must be used.
One of the most important things to point out is that the contributors will be allow to continue performing their operations and transactions with their providers under the principle of free competition that the law establishes, in other words the negotiation and the pact of prices should be negotiated as you would with any other provider.
One of the primary exercises that has to be done is to determine if the company has one or more related parts with the one that makes one or hundreds commercial transactions during the year, which must be reported in a study. The parameters to determine one related part, has to do with the shareholding or equity stake, the control exercise and decision making between two parts.
However, it should be noted that the aforementioned has to come into play when the transaction is between a resident with a non-resident, or a resident and a free zone.
Once they come into force, the study of transfer pricing, has to be presented in 2018 along with the annual income tax declaration. It is necessary that each company starts the analysis of those transactions subject to transfer pricing in order to improve or remodel the tax planning. Also, to ensure the compliance of obligations and to avoid possible penalties.
As part of the application of this measure, the past May 25th, García & Bodán altogether with Camara de Industria y Comercio (Camexnic) and the firm Crowe Horwath, carried out the conference “Transfer Pricing: an Integral Vision”, aimed to private companies of the country. The topics addressed ranged from the concepts of related parts, principle of free competition and the five methods that are established in the law, to the application of these dispositions in other countries of the Central American region.
Melvin Estrada Canizales
Senior Associate
García & Bodán
Nicaragua