Intra-group services and the 5 % mark-up: simplification under OECD guidance.

By Gabriela Páez

What is a Safe Harbor regime?

A Safe Harbor, literally translated as "safe harbor", is a legal or administrative provision by which the Tax Administration accepts, in advance and without question, the prices or margins applied in certain transactions between related companies, whether they are companies of the same owner or controlled by the same group.

Its purpose is to simplify tax compliance, reduce administrative costs, and provide certainty to companies regarding the acceptance of their transfer pricing (TP) policies.

In practical terms, a Safe Harbour acts as a regulatory shortcut: it relieves the taxpayer of the burden of proving that the applied price is within the arm's length range, provided that the transaction is low risk and complies with the established conditions.

What does Costa Rican law say?

Transfer Pricing legislation in Costa Rica is contained in Law No. 9635 on Strengthening Public Finances and its regulations, which are aligned with the OECD Transfer Pricing Guidelines (2022).

This law grants the General Directorate of Taxation the power to define methods, procedures and reporting obligations in matters of Transfer Pricing, but it does not develop specific figures such as Safe Harbors, this means that to date there is no formal regime in Costa Rica that applies Safe Harbors, however, it does not prohibit them either.

Its implementation would require regulatory development by the Tax Administration, defining:

1) types of operations covered,

2) maximum amounts or thresholds,

3) eligibility conditions,

4) and accession procedures.

Its adoption would be the natural step in the maturation of the Costa Rican tax system, moving from a model focused on control to one of facilitation and legal certainty.

What does the OECD propose: a 5% margin?

The OECD, in Chapter VII of its Transfer Pricing Guidelines (paragraphs 7.43–7.65), introduced a simplified regime for low value-adding intra-group services.

When the service is ancillary, does not involve intangible assets or significant risks, it is presumed reasonable to apply a markup or operating margin of 5% on the relevant costs, without the need for an exhaustive comparative study, i.e., a transfer pricing study.

Countries like Mexico, Colombia, and Chile have already formally incorporated this 5% margin for administrative, accounting, IT, or back-office services.

Costa Rica could follow that trend, allowing fixed parameters to be applied to routine operations between related companies.

Who can benefit from implementing a Safe Harbor?

Implementing a Safe Harbor in Costa Rica would be a valuable tool for a specific segment of taxpayers:

1. SMEs (Small and Medium-sized Enterprises) and Multinationals with Limited Operations: Many Costa Rican subsidiaries of international groups carry out routine, low-risk operations, such as limited manufacturing (“simple maquila”), the provision of back-office services (accounting, IT support), or the distribution of goods in the local market. For them, the burden of preparing a comprehensive tax planning study, which often involves expensive consultants and complex benchmarking, is disproportionate to the tax risk they represent. A Safe Harbor would allow them to comply with the law quickly and cost-effectively.

   
   

2. Companies in Free Trade Zones: Many of these companies carry out predictable, low-risk transactions (intra-group sales of services, for example). A Safe Harbor would provide them with the legal certainty they need to maintain their competitiveness and attract more investment.

   
   

3. The Tax Administration itself: Safe Harbor would be an efficient management tool. By channeling low-risk transactions through a simplified procedure, the Administration could free up human and technical resources to focus on auditing high-risk transactions, large multinationals with complex structures, and cases where there is a real potential for base erosion.

   
   

The Contrast: What Would Happen With and Without a Transfer Pricing Study?

The absence of a Safe Harbor forces almost all companies with related parties abroad to conduct a full Transfer Pricing study.

Without a PT Study (or with a deficient one):

• Tax adjustments: In an audit, the Tax Administration may reject the prices applied and make adjustments, increasing the taxable base and generating a greater tax obligation.

• Fines and interest: The law contemplates significant economic sanctions for failure to comply with the obligation to have and present the documentation, which are calculated on the amount of the adjustment.

• Double taxation: An adjustment in Costa Rica does not necessarily imply a corresponding adjustment in the counterparty's country, which could result in the same profit being taxed twice.

• Legal insecurity and uncertainty: The company operates under the constant threat of auditing, which hinders financial planning and discourages investment.

• Defense costs: Defending the company's position in a review or litigation process involves high costs in legal fees and consulting.

Under a Safe Harbor Regime (for eligible operations):

• Legal certainty: The company is confident that, by complying with Safe Harbor criteria, its prices will not be challenged.

• Reduced compliance costs: The need to conduct a full and costly PT study year after year for these operations is eliminated.

• Administrative simplification: The compliance process is greatly streamlined.

• Avoid litigation: Since the transaction is pre-approved, the chances of conflicts with the Tax Administration are drastically reduced.

• Investment promotion: Costa Rica is positioning itself as a country with a modern, predictable, and business-friendly tax system, attracting more high-quality investment.

Although the country does not yet have a formally implemented Safe Harbor agreement, international experience shows that its adoption would complement the existing framework, offering streamlined and simplified alternatives, especially for SMEs, multinationals, and companies in Free Trade Zones. It could be said that it is a natural evolution toward a more efficient, predictable, and competitive tax system, in line with international best practices.

Proper transfer pricing management is not limited to compliance with tax obligations; rather, it constitutes a strategic tool to strengthen legal certainty, reduce risks, and promote a more transparent relationship between companies and the Tax Administration.

Strengthening and diversifying the available tools and a possible future incorporation of Safe Harbors would allow Costa Rica to consolidate a modern and reliable tax environment, generating benefits for both taxpayers and the Tax Administration, and why not position the country as a regional benchmark in terms of transparency and tax security.