Oct 6, 2025
This international ruling sends a message to multinationals operating in Costa Rica: it is not enough for a contract to mention brands, patents, or shared services. What is truly decisive is what is actually being paid for in practice, how that payment is supported, and whether sufficient documentation exists to reflect the economic reality of the related parties. PepsiCo’s experience shows that, when facing a tax audit, the dividing line between inventories, intercompany services, intra-group loans, or royalties must be clearly defined, justified, and documented.
Royalties vs. Inventories
In Costa Rica, the Income Tax Law (Law No. 7092) defines royalties as capital income derived from the use of rights such as trademarks, patents, franchises, know-how, and other intangibles. These royalties are subject to a 15% withholding tax at source, which constitutes a single and definitive tax for non-resident beneficiaries.
The distinction between paying for inventories or for intangibles is not a mere technicality but a difference with profound tax implications. An imprecise invoice or poorly drafted contract can turn a purchase of goods — a transaction that in principle is not subject to withholding since it enters the country through customs and with payment of its duties — into a disbursement reclassified as a royalty and, therefore, subject to withholding. For this reason, it is essential that contracts clearly define the nature of each consideration, and that every payment be supported by invoices, purchase orders, and accounting records that demonstrate it indeed refers to tangible goods and not to concealed payments for intellectual property rights.
Shared services and intercompany loans
In multinational groups, it is common for the parent company to bill centralized services (accounting, human resources, technology, marketing) or to grant loans to its subsidiaries. However, if there is no evidence supporting the market value of those services or the reasonableness of the interest rates, the Tax Administration may reclassify the payments as hidden royalties or dividends.
The OECD Transfer Pricing Guidelines are clear: every shared service must generate a real economic benefit for the subsidiary and be charged at market value (arm’s length). Otherwise, the expense may be rejected as a deduction. The same applies to intra-group loans: without clear contracts, defined terms, and competitive rates, the debt may be considered equity, and the interest non-deductible.
In Costa Rica, Resolution DGT-R-44-2016 requires that related-party transactions be supported by transfer pricing studies. These must include comparables, functional analysis, and evidence that prices comply with the arm’s-length principle. In payments for royalties, shared services, or intra-group financing, this study becomes the company’s main shield. Without it, any transaction may be questioned, leaving the company exposed to adjustments, fines, and interest.
Netting and cash pooling: common practices, but with tax risks.
Headquarters often implement netting and cash pooling to simplify payments and centralize liquidity. Netting offsets multiple obligations among subsidiaries to settle them in a single net balance. Cash pooling concentrates funds in a main account of the headquarters and optimizes financial returns; however, resources are sometimes withdrawn without knowing exactly the real receivable or payable balances among subsidiaries.
These practices entail tax risks. In Costa Rica, they must be supported by intercompany contracts defining roles, limits, interest rates, and terms. Otherwise, loans derived from pooling may be reclassified as capital contributions, eliminating the deductibility of interest and triggering transfer pricing adjustments; if they involve outflows, they may even be deemed profit distributions.
Conclusion
The lesson from the PepsiCo case is clear: what protects companies is not the form of the contracts, but the economic substance of the transactions and the documentation that supports it. For multinationals with a presence in Costa Rica, this means clear contracts, up-to-date transfer pricing studies, solid accounting evidence, and treasury policies capable of withstanding scrutiny from the Tax Administration.