In Costa Rica, tax controversies predominantly emerge from audits conducted by the Tax Authorities. These audits are systematic inspections aimed at assessing the compliance of taxpayers with tax regulations.

The audit process is typically initiated with the issuance of a formal notification to the taxpayer. This notification serves as both an announcement of the impending audit and a request for the submission of documents that substantiate the claims made in the taxpayer's tax return.

In Costa Rica, Income Tax and Value Added Tax (VAT) are the primary sources of tax controversies. Since these taxes constitute a significant portion of the national revenue, the Tax Authorities usually focus on auditing the proper payment of these taxes.

Recently, there has been an increase in disputes concerning municipal taxes, with a particular emphasis on the commercial licence tax. This increase can be attributed to evolving interpretations of municipal tax regulations and the expanding scope of businesses subject to these taxes.

To mitigate the risk of tax controversies, adopting rigorous accounting practices is essential. This involves maintaining accurate and detailed financial records that can substantiate tax filings and demonstrate compliance with the relevant tax laws. Adherence to regulatory requirements is crucial, including staying informed about the latest tax legislation and guidelines to ensure all tax obligations are met accurately and on time.

Engaging with specialised tax professionals also plays an important role, especially in complex or ambiguous situations. Proactive consultation with tax advisers can also help to identify opportunities for tax optimisation while ensuring compliance.

The adoption of the BEPS recommendations and the EU measures have not directly altered the frequency of tax controversies in Costa Rica.

However, these international frameworks have influenced the tax compliance landscape within the jurisdiction. In response to these global initiatives, Costa Rican taxpayers have been prompted to enhance the rigour and transparency of their financial reporting. Specifically, there is an emphasis on the accuracy and completeness of documentation supporting the authenticity of commercial transactions, such as transfer pricing studies.

In Costa Rica, the legal framework upholds the taxpayer's right to contest additional tax assessments without the precondition of payment or providing a financial guarantee. In this sense, a 2016 Constitutional Court ruling declared the “solve et repete” principle – requiring payment before contestation – to be unconstitutional in the context of tax procedures. This ensures that taxpayers can engage in administrative or judicial appeals against tax assessments without the immediate financial burden of the disputed tax amount.

Despite this legal protection, tax advisers often recommend a cautious approach, advising taxpayers to consider settling the additional assessed tax if financially feasible. This strategy aims to mitigate the accumulation of negative interest that could escalate the financial liability should the appeal be unsuccessful. In cases where the taxpayer's appeal is successful, they may be eligible to recover the paid amount along with positive interest.

It is also important to note that administrative or criminal proceedings might be initiated against taxpayers who fail to declare or pay taxes within the stipulated timeframe. Such actions are separate from the process of contesting additional assessments, and underscore the importance of timely compliance with tax obligations.

In Costa Rica, the Tax Authority strategically directs its audit efforts towards certain categories of taxpayers deemed to have a significant impact on the country's economic landscape. Among these, “large taxpayers” constitute a primary focus group due to their substantial contributions to the national revenue. These entities are typically distinguished by their size and turnover, and the volume of their transactions.

Beyond these targeted groups, several other factors can trigger a tax audit, including:

• high-risk profiles – entities and individuals that engage in transactions or practices known to be susceptible to tax evasion or avoidance may be categorised as “high-risk” and subject to increased scrutiny;
• periodicity of audits – entities that have not undergone an audit for an extended period may be selected for review, under the principle that regular examination helps to ensure ongoing compliance;
• sector-specific focus – certain industries or sectors may be identified as “target activities” due to their nature, economic significance or propensity for complex tax issues (eg, financial entities); and
• random selection – to ensure fairness and unpredictability in the audit process, the Tax Authority may also employ random selection methods.

While the law does not include explicit time limits for the completion of a tax audit in Costa Rica, it is generally observed that the process can take approximately 24 months. This duration is calculated from the moment the taxpayer receives the initial audit notification to the issuance of the notice of deficiency.

In most cases, the Tax Authority presents the tax audit findings to the taxpayer within six to 12 months after the audit was started. If the taxpayer does not agree with the proposed additional tax assessment, the Tax Authority would issue a notice of deficiency in the following six to 12 months.

There is a four-year statute of limitations within which the Tax Authority must initiate the tax audit. This term is extended to ten years when the taxpayer is not registered with the tax authorities, when the returns are considered fraudulent, and when the taxpayer did not submit the legally required sworn statements.

The initial notice of the tax audit interrupts the count of the statute of limitations term. Therefore, once the Tax Authority communicates the opening of a tax audit to the taxpayer, the authorities will have four years to analyse the relevant information, communicate the tax audit findings and issue the notice of deficiency.

Notably, the interruption of the statute of limitations period made by the initial notice of the tax audit is cancelled if the audit procedure is suspended for a two-month period before the issuance of the notice of deficiency.

In general terms, the entire audit procedure is conducted electronically, by requesting the taxpayer and third parties’ electronical data and records. However, the Tax Authority can request visits to the taxpayer's premises to validate information about the taxpayer's operation.

Finally, at the end of the audit, a hearing is held at the Tax Authority's offices, when the results of the audit will be communicated to the taxpayer.

Tax auditors deploy a multifaceted strategy to ensure the accuracy and compliance of tax reporting. A significant aspect of this approach involves cross-verification, where information declared on tax returns is meticulously compared with data obtained from other taxpayers, such as through electronic invoices and other declarations. This method allows auditors to validate the accuracy of reported transactions and to detect inconsistencies or discrepancies.

The administration of VAT has become a focal point for auditors, especially in ensuring that taxpayers correctly register and remit VAT. The examination covers both input and output VAT transactions, with auditors verifying the legitimacy of VAT credits on inputs and their direct relation to taxable outputs.

There has not been an increase in tax audits in Costa Rica due to cross-border exchanges of information, nor have there been any tax audits where different states are involved.

Precision in Information Sharing

One of the most critical strategies during a tax audit is to provide only the specific information and documents requested by the Tax Authority. This requires a careful review of each request to ensure that the response is accurate, complete and directly relevant, avoiding the submission of extraneous or unsolicited information that could broaden the scope of the audit or lead to unnecessary complications.

Expert Advisory

The role of legal and accounting advisers is crucial throughout the audit process. Their expertise not only ensures that responses and document submissions are compliant and strategically sound but also that they align with the best interests of the taxpayer. Advisers can help interpret the auditor's requests, provide guidance on the implications of various responses, and develop a comprehensive strategy for addressing complex issues that may arise.

Management of Communications and Timelines

Establishing a comprehensive and methodical record-keeping system is fundamental for tracking all communications with the Tax Authority. This should include detailed logs of meetings, calls and exchanges of written correspondence, along with dates, participants and the key points discussed or agreed upon. Such records not only serve as a reference for future interactions but also provide a clear trail of evidence that can be invaluable in resolving disputes or misunderstandings.

It is also important to pay close attention to the deadlines set by the Tax Authority for submitting requested information, as timely compliance can avoid economic penalties.

On the other hand, it is important to be aware of any suspensions in the audit procedure initiated by the Tax Authority. Such suspensions can affect the overall timeline of the audit and may have implications for the statute of limitations applicable to the tax periods under review.

Understanding the Audit Scope

This understanding can guide the preparation of documents and information, ensuring that they address the auditor's areas of interest comprehensively and pre-emptively address potential areas of concern.

Proactive Identification of Issues

Anticipating and identifying potential issues before they are raised by auditors can provide a strategic advantage, as this proactive approach allows for the preparation of thorough explanations and justifications.

When the Tax Authority has finished with the audit, a preliminary tax assessment will be issued, with the findings of the Tax Authority. After the tax authorities give notice of the preliminary tax assessment, a five-day term is granted to the taxpayer to express acceptance or rejection of this assessment.

If the assessment is rejected by the taxpayer, the Tax Authority will issue a formal act to express its reasoning and establish the additional tax fee to be paid. Against this formal act, a ten-day term is granted to the taxpayer to argue and submit evidence against this formal communication. It has been suggested that this term should be 30 days – this position has been accepted by the Administrative Tax Court but has still not been adopted by the auditors.

If the Tax Authority considers the arguments and evidence submitted by the taxpayer to be insufficient, it will issue a Notice of Deficiency, establishing the final additional tax fee to be paid by the taxpayer.

Against this final act of the procedure, the taxpayer can file a revoke plea requesting the authority that issued the act to re-evaluate its position and withdraw the additional tax fee charged to the taxpayer. This revoke plea needs to be filed within 30 business days.

If the Tax Authority maintains its position, the taxpayer can submit an appeal before the Administrative Tax Court, to revise the legality of the procedure, the validity of the arguments and the additional tax fee set by the Tax Authority. The ruling of the Administrative Tax Court finalises the administrative procedure.

Connected to the above-mentioned assessment, a sanctioning procedure is processed, intending the imposition of a sanction on the taxpayer. Against the sanctioning position, the taxpayer can file both the revoke plea and the appeal before the Administrative Tax Court.

The taxpayer is not obliged to follow the administrative claim phase in either the determinative or sanctioning procedure. At any point during the procedure, the taxpayer can file a lawsuit before the Administrative Judicial Court requesting the annulment of the notice of deficiency and/or the sanctioning decision.

There are no deadlines within which the tax authorities are compelled to decide a claim submitted by the taxpayer. However, there is a suggested two-month term in which the Tax Authority should issue the response to the revoke plea. If the ruling has not been issued within this term, the taxpayer can presume this silence as a rejection of their plea and file the next appeal before the Administrative Tax Court.

Likewise, the Administrative Tax Court is supposed to issue its ruling on the appeal filed by the taxpayer within six months. If the ruling on the appeal is not issued within this term, no additional interest (besides the amount already computed) would be charged if the appeal is rejected.

Judicial tax litigation typically begins when a taxpayer files a lawsuit challenging specific actions taken during the audit process that resulted in an increased tax liability. The primary objective of this lawsuit is to seek the annulment of these disputed audit acts and, where applicable, to obtain a refund of any amounts that were paid because of these contested decisions. This initial step involves the preparation and submission of a comprehensive legal filing that articulates the grounds for contesting the audit findings, supported by relevant evidence and legal arguments.

The litigation process is designed to provide a judicial review of the administrative actions taken by the Tax Authority, offering taxpayers a formal avenue to dispute tax assessments or decisions they believe to be erroneous, unjust or inconsistent with applicable tax laws.

In certain cases, the initiation of judicial tax litigation can also arise from the State (represented by the Attorney General's Office). This occurs when the State seeks to challenge a decision made by the Administrative Tax Court that was favourable to the taxpayer during the administrative phase of the dispute. Such a scenario typically unfolds when the Tax Authority believes that the Administrative Tax Court's ruling was based on an incorrect interpretation of the law or an improper evaluation of the facts.

The Administrative Court is the competent jurisdiction to request the annulment of a tax assessment and notice of deficiency. The judicial procedure before said court entails eight different stages.

• Submission of the lawsuit – the process begins when the plaintiff (usually the taxpayer) files a lawsuit challenging specific tax assessments or decisions.
• Response of the defendant – following the lawsuit's submission, the defendant (typically the Tax Authority, represented by the Attorney General's Office) is given an opportunity to respond.
• The plaintiff is then given a chance to review and react to the defendant's response. This stage allows the plaintiff to address any new points raised by the defendant and reinforce their position.
• Preliminary hearing – this stage involves a preliminary review of the case by the court. The purpose is to clarify the issues in dispute, establish the facts that are agreed upon and those that are contested, and determine the evidence that will be considered.
• Trial hearing – both parties present their cases in detail during the trial hearing, including the submission of evidence, witness testimonies and legal arguments. The trial hearing is the main event where the substantive issues of the case are thoroughly examined.
• Judicial ruling – after considering the evidence and arguments presented during the trial, the court issues its ruling. This decision will either uphold the tax assessment or grant the plaintiff's request for annulment.
• If either party disagrees with the Administrative Court's decision, they can appeal to the First Chamber of the Supreme Court. This appeal must be based on specific legal grounds, such as errors in the application of the law or procedural issues.
• The Supreme Court's First Chamber reviews the appeal and issues a final judgment. This decision is binding and marks the conclusion of the judicial tax dispute process.

The acceptance of evidence submitted by parties to the process is discussed and decided in the preliminary hearing. However, the cross-examination of witness and expert evidence is conducted in the trial hearing before the judges who will issue the final ruling.

Witness and expert evidence helps to explain complex matters to judges, particularly accountant experts and the testimony of representatives of the companies. It also helps judges to comprehend commercial matters that directly affect the way specific transactions were made, which may not be visible or clear in the filed documentation.

From a strategic point of view, testimonies offered during the trial can also highlight relevant points of the case theory that may be overlooked by the judges because of the extensive files and wide documentation.

In tax litigation, the nature of the dispute and the initiating party are critical factors that influence the allocation of the burden of proof. Predominantly, tax disputes are initiated by taxpayers challenging additional assessments by the Tax Authority. In these instances, it is incumbent upon the taxpayers to demonstrate the inaccuracies or improprieties in the assessments.

A crucial element in tax litigation is the Administrative File, which often serves as the cornerstone of evidence in the judicial process. This file contains all requests for information made by the Tax Authority, relevant resolutions and documents issued by the administration, and the responses provided by the taxpayer. The exhaustive nature of the Administrative File makes it an indispensable resource in the litigation process, as it consolidates all the evidence that could potentially highlight errors or oversights committed by the Tax Authority.

Given the centrality of the Administrative File, it is crucial for taxpayers to ensure that their submissions to the Tax Authority during the administrative phase are accurate, complete and well documented. These submissions become part of the Administrative File and, consequently, a key part of the evidence reviewed during litigation. Therefore, the way taxpayers respond to the Tax Authority's inquiries and the documentation they provide can significantly influence the outcome of the case.

In summary, while the burden of proof typically lies with the taxpayer in tax litigation, the Administrative File emerges as a critical repository of evidence.

One critical strategic decision involves determining the optimal timing for the production of documents and evidence. Early submission can set a strong foundation for the case, particularly with the initial lawsuit. However, there are other stages in which the parties can also submit evidence.

A common strategy involves paying the disputed tax amount and any applicable interest under protest, which can mitigate the accrual of further interest and penalties if the taxpayer does not prevail.

Introducing expert reports and witness testimonies early in the process can be instrumental, especially for complex issues that require specialised knowledge.

Planning for the possibility of an appeal, regardless of the initial outcome, is also essential.

Case law is relevant when the courts are deciding tax cases. Primarily, jurisprudence of the First Chamber of the Supreme Court (the highest hierarchical court in tax matters) is considered highly by the Administrative Court, as parties may appeal their ruling before this superior court.

Moreover, current regulation establishes a procedure by which interested parties could request the Tax Authority to apply case law of the First Chamber of the Supreme Court to their own cases, even before entering a judicial claim.

Doctrine and international guidelines are taken into consideration by Costa Rican national courts in innovative and non-usual matters. Neither doctrine nor international guidelines constitute sufficient basis for a judge to decide a case, because of Costa Rican regulatory structure, but the application of these references should be complementary to a justification based on the law and executive regulations. Likewise, jurisprudence of international tax courts is generally not taken into consideration by Costa Rican national courts.

The regular judicial administrative process can be subject to three different types of appeals:

• reconsideration plea, filed against the same tribunal that issued the ruling (Administrative Court);
• appeal of specific proceeding rulings, filed before the Administrative Appeals Court; and
• appeal of the final ruling, filed before the First Chamber of the Supreme Court of Justice.

The tribunal system in the administrative procedure consists of three different courts (in ascending hierarchy):

• the Administrative Court;
• the Administrative Appeals Court; and
• the First Chamber of the Supreme Court.

The ruling of the First Chamber of the Supreme Court of Justice finalises the process entirely.

The different stages of the appeal procedure are as follows:

• the Administrative Court issues the final ruling of the process and gives notice to all interested parties;
• all parts of the process are granted 15 business days to file an appeal before the First Chamber of the Supreme Court of Justice;
• if an appeal is received in the First Chamber of the Supreme Court of Justice, one day is given to both parties to designate a notifications e-mail address;
• the First Chamber of the Supreme Court of Justice judges will then analyse the admissibility of the appeal and issue an acceptance or rejection judgment;
• if the appeal is admitted for analysis, the First Chamber of the Supreme Court of Justice will grant a term to the non-appealing part to file a defence against the appeal – in some exceptional cases, an oral hearing could be granted to lawyers to formulate arguments before the Court; and
• the First Chamber of the Supreme Court of Justice will analyse all the arguments of the appeal and issue a ruling on the appeal.

The ruling of the First Chamber of the Supreme Court of Justice is definitive, and only extraordinary situations (eg, due process violations) constitute sufficient merit for the parties to be able to submit a reconsideration request before this same tribunal.

The reconsideration plea, which is an ordinary appeal submitted during the procedure against decisions regarding the process, is decided by the same judge of the Administrative Court who issued it. This request is decided by one judge.

The appeal of specific proceeding rulings can be filed against restrictive and specific decisions issued during the procedure (eg, rejection of precautionary measures or rejection of evidence), and is decided by the Administrative Appeals Court. The filing of this appeal interrupts the continuance of the process. This appeal is decided by a tribunal formed of three judges.

The appeal against the final judicial ruling is decided by the First Chamber of the Supreme Court of Justice, which is in charge of deciding over the appeals and is formed of five Supreme Court Justices.

The judges of both the Administrative Court and the Administrative Appeals Court are appointed according to their experience, pursuant to internal regulations of the Judiciary Branch. Supreme Court Justices are appointed by the Costa Rican Congress.

Alternative forms of dispute resolution for tax matters are not applicable in Costa Rica.

Alternative forms of dispute resolution for tax matters are not applicable in Costa Rica.

Alternative forms of dispute resolution for tax matters are not applicable in Costa Rica.

However, taxpayers do have the possibility of requesting a payment arrangement plan after the notice of deficiency has been communicated to avoid additional interest over the supposedly doubted amount. This arrangement does not implicate the acceptance of the assessment made by the Tax Authority.

By following previous opinions of the Tax Authorities, taxpayers can justify their actions in an eventual tax audit, which could reduce the risk of an assessment including an additional tax fee.

The regulation also stipulates the possibility of negotiating a previous acceptance by the Tax Authorities of transfer pricing practices, but this practice has not yet been applied by taxpayers.

Alternative forms of dispute resolution for tax matters are not applicable in Costa Rica.

Alternative forms of dispute resolution for tax matters are not applicable in Costa Rica.

If the Tax Authority concludes when conducting the tax audit procedure that taxes were not appropriately paid, a sanctioning decision is issued. The severity of the monetary sanction depends on the actions that are presumed to have been committed by the taxpayer (eg, false statements, withholding information, not reporting income).

In addition, some infractions could be considered tax fraud and implicate a criminal investigation in a criminal judicial process. Tax fraud can be committed by evading the payment of taxes, by evading the payment of amounts withheld from third parties or that should have been retained, or by enjoying unjustified tax refunds or exemptions. Criminal sanctions may only apply to the fraudulent party when the defrauded amount exceeds approximately USD360,000.

The tax assessment and the administrative infringement file are strictly related. The administrative infringement file begins after the tax assessment has a final administrative decision that defines the amount of additional tax that should be paid by the taxpayer. If the taxpayer can revoke the administrative assessment, the sanction will be over-ridden as well.

If there is a criminal investigation, the administrative assessment and the administrative infringement file are both suspended until there is a final ruling of the Criminal Court either sanctioning or dismissing the criminal charges.

Administrative Infringement Process

The administrative infringement process begins when the Tax Authority, during or after a tax audit, identifies discrepancies indicating that taxes have not been paid correctly or that tax obligations have not been fulfilled as per the legal requirements. This discovery leads to the issuance of a sanctioning decision, marking the commencement of the administrative infringement proceedings.

Transition to Criminal Tax Case

If the Tax Authority discerns, upon concluding the administrative assessment, that the nature of the tax violations extends beyond mere non-compliance and potentially constitutes a criminal offence (such as tax evasion, fraud or wilful misconduct), it has the authority to escalate the matter to the criminal justice system. This escalation involves filing a report with the Public Prosecutor's Office, detailing the suspected criminal activities for further investigation and potential prosecution.

Criteria for Criminal Prosecution

Not all tax discrepancies or non-compliances result in criminal proceedings. The decision to initiate a criminal tax case typically depends on the severity, intent and magnitude of the violation, among other factors. Criminal tax cases often involve deliberate attempts to evade taxes, significant under-reporting of income, fraudulent activities or other actions that intentionally undermine the integrity of the tax system.

Recent Trends

Although historically it may not have been common for administrative tax assessments to lead to criminal investigations, recent policy changes or enforcement priorities can influence this trend. For example, a strategic decision by the Ministry of Finance, supported by higher governmental authorities, to take a stricter stance against tax evasion and fraud could result in an increased likelihood of administrative tax cases evolving into criminal proceedings.

Implications for Taxpayers

The potential for an administrative infringement process to evolve into a criminal tax case underscores the importance of thorough compliance with tax laws and the serious consequences of significant tax violations. Taxpayers should ensure accurate and complete tax filings and seek professional advice in complex or uncertain situations to avoid the risk of administrative sanctions and the possibility of criminal charges.

The stages of a tax administrative sanction procedure and a tax criminal case involve distinct procedures and are adjudicated by different courts. An overview of each follows.

Tax Administrative Sanction Procedure

• Draft sanctioning decision – the process initiates with the Tax Authority issuing a preliminary or draft sanctioning decision after identifying non-compliance during an audit. This draft outlines the perceived violations and proposed penalties.
• Taxpayer's defence – upon receiving the draft decision, the taxpayer can present a defence, challenging the findings and proposed sanctions.
• Final sanctioning decision – if the Tax Authority finds the taxpayer's defence insufficient to overturn the initial findings, it will issue a final sanctioning decision, formally imposing the penalties for the infringement.
• Revocation plea and appeal – the taxpayer can contest this final decision by filing a revocation plea with the Tax Authority. If the plea is rejected or the taxpayer remains unsatisfied with the outcome, they can escalate the matter to the Administrative Tax Court by filing an appeal. This court specialises in disputes related to administrative actions, including tax matters.

Tax Criminal Case

• Criminal investigation – if the Tax Authority believes that the tax violations constitute criminal offences, it will refer the case to the Public Prosecutor's Office, which initiates a criminal investigation. This phase involves gathering evidence, interviewing witnesses and building a case to support potential charges.
• Criminal charges and trial – if sufficient evidence of criminal conduct is found, formal charges are filed and the case proceeds to trial in a Criminal Court. This court is separate and distinct from the Administrative Court and has jurisdiction over criminal offences, including tax fraud and evasion.
• Conviction and sentencing – if the defendant (taxpayer) is found guilty, the Criminal Court will convict and sentence them according to the applicable criminal laws.

Distinction Between Courts

• The Administrative Court deals with disputes regarding the legality of tax assessments and administrative penalties. This court evaluates whether the Tax Authority's actions were in accordance with tax laws and regulations.
• The Criminal Court handles cases involving criminal offences, including those related to tax matters. It assesses whether the actions of the taxpayer constituted a criminal violation and determines appropriate criminal penalties.

Upfront payment of an additional tax assessment can result in reduced fines for the taxpayer. Specifically, a 50% reduction is possible if payment is made before the final tax determination.

Even after criminal charges are filed, full payment in Criminal Court and a conciliation request may stop the trial, depending on specific conditions.

If the Criminal Court decides to convict the taxpayer, an appeal could be filed against the convicting ruling, before a Criminal Appeals Court, and later on before the Third Chamber of the Supreme Court of Justice.

Very few cases related to transfer pricing have been the subject of a tax assessment procedure. In these cases, the Tax Authority has focused its attention on how the transfer pricing study was conducted, and on the market value of the services/products offered between companies. However, no cases related to GAAR, SAAR, transfer pricing rules or anti-avoidance rules that have implied the beginning of a criminal investigation/process have yet been seen.

In cases of double taxation resulting from cross-border tax adjustments, the issues are generally addressed through consultations with the Tax Administration for the application of double taxation treaties, rather than through domestic litigation.

In Costa Rica, there is no case law involving the application of GAAR or SAAR in cross-border situations covered by bilateral tax treaties.

The main international transfer pricing adjustments have not been challenged under domestic Costa Rican tax courts.

In Costa Rica, unilateral or bilateral advance pricing agreements (APAs) are not commonly used mechanisms to avoid or mitigate litigation in transfer pricing matters. Although the regulatory framework in Costa Rica allows for the possibility of APAs, their practical application by taxpayers is limited.

Taxpayers interested in pursuing an APA must initiate the process by submitting a request to the Tax Authority. This request should be accompanied by a proposal that outlines the transfer pricing methodology and the proposed terms, based on what independent parties would likely agree to in comparable transactions.

As far as is known, the primary subjects that have arisen in litigation related to cross-border situations are transfer pricing and taxable income obtained outside Costa Rican borders. Companies should hire experienced and recognised teams to conduct the transfer pricing studies, supported by competent local teams who should keep updated with the latest regulations and judicial precedents, and maintain solid back-ups of the inputs used to prepare the study.

Regarding taxable income obtained outside Costa Rican borders, a recent judicial ruling of the Constitutional Court declared constitutional the case law of the First Chamber of the Supreme Court of Justice stating the taxability of income obtained outside Costa Rican borders when the economic structure or the capital to generate that income came from inside Costa Rica; this precedent is binding for all audits regarding fiscal periods prior to 2022.

A recent reform on the income tax law modified this interpretation.

This is not applicable as Costa Rica is not an EU member state.

This is not applicable as Costa Rica is not an EU member state.

This is not applicable as Costa Rica is not an EU member state.

This is not applicable as Costa Rica is not an EU member state.

Costa Rica does not apply these procedures.

Costa Rica does not apply these procedures.

Costa Rica does not apply these procedures.

Costa Rica does not apply these procedures.

Costa Rica does not apply these procedures.

Costa Rica does not apply these procedures.

Costa Rica does not apply these procedures.

Costa Rica only applies domestic rules to settle tax disputes.

Costa Rica does not apply international tax arbitration.

The approximate costs to litigate in the administrative phase depend on the amount of additional tax fee considered owed by the Tax Authority and the complexity of the assessment made by the Tax Authority. However, in cases where the additional tax exceeds USD1 million, legal fees for the administrative procedure can amount to between USD10,000 and USD20,000.

In Costa Rica, litigation fees for judicial processes are outlined in the Legal Fee Schedule (Decree No 41457-JP), Article 16 of which details the calculation of attorney fees in contentious administrative judicial proceedings. The fees are based on a percentage of the economic value involved in the case, with varying rates depending on the amount:

• for amounts up to CRC16.5 million, a fee of 20% is applied;
• for the portion exceeding CRC16.5 million and up to CRC82.5 million, the rate is 15%; and
• for amounts above CRC82.5 million, the fee is set at 10%.

These rates are binding for all attorneys practising in Costa Rica and are applicable to the case in question. The fees are typically borne by the party engaging the legal services, which can be either the taxpayer or the tax authorities, depending on the situation.

Payment of these fees is usually arranged at the beginning of the legal representation but can vary based on the agreement between the lawyer and the client. In Costa Rican legal practice, it is common for the losing party to be ordered to cover the legal costs of the prevailing party, including attorney fees, although this is subject to the court's discretion.

The taxpayer could request interests over the paid amount of additional tax fee, from the moment the additional tax was paid.

Alternative forms of dispute resolution for tax matters are not applicable in Costa Rica.

The data on pending tax court cases has not been publicly published.

The data on pending tax court cases has not been publicly published.

This data has not been publicly published.

The main recommendation is to request advice on both accounting and legal matters when facing an audit. However, the general strategic guidelines in tax controversy are as follows.

• Selective documentation submission – provide only the specific documentation and information requested by the Tax Authority. Avoid volunteering additional documents that were not asked for, as this could potentially broaden the scope of the audit or lead to further scrutiny.
• Precise communication – when responding to inquiries from the Tax Authority regarding your transactions, be concise and accurate. Ensure that your responses are directly relevant to the questions asked and supported by appropriate documentation.
• Leveraging case law – when filing any appeals or presenting arguments against the Tax Authority's findings, bolster your position with relevant case law. Citing precedents can strengthen your arguments and demonstrate the legal basis for your stance.
• Procedural review – pay close attention to the procedural aspects of the audit and any subsequent legal proceedings. Identify any procedural errors or irregularities that occurred during the process, as these could provide grounds for contesting the Tax Authority's actions or seeking annulment of the decision.