In Costa Rica, tax controversies predominantly arise 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 typically begins with the issuance of a formal notification to the taxpayer. This notification serves both as an announcement of the impending audit and as a request for the submission of documents to verify the accuracy of the taxpayer’s submitted declaration.

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

Regarding Income Tax, audits generally focus on verifying if the deductible expenses incurred by the taxpayers are effectively required and related to the taxable economic activity.

Meanwhile, audits related to VAT usually aim to verify that the calculation of the tax base is performed in accordance with the generating event that produces it.

Taxpayers can mitigate the risk of tax controversies by adopting rigorous accounting practices and being fully compliant with their formal and substantive tax duties. 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.

It is important for companies to maintain the traceability of all transactions conducted during the fiscal period and to have supporting material that permits the verification of proper accounting practices in the event of any administrative queries.

Additionally, regarding the deductibility of expenses, it is important that their support be based on their usefulness, necessity and relevance to the business operation, while also ensuring their proportionality with respect to the intended purpose.

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, in the past there have been cases where the Tax Administration conducted tax audits, relying on the economic reality principle to tackle tax avoidance. In practice, the so-called economic reality principle acts as a general anti-abuse rule (GAAR) that allows the Tax Administration to determine the reality behind a transaction and its tax implications.

Also, in February 2025, the General Directorate of Taxation submitted to public consultation the “Resolution regarding the submission of the informative declaration on transfer pricing”. This Resolution stipulates that the declaration must be submitted by companies classified as large national taxpayers, or entities under the free trade zone regime, that conduct domestic or cross-border transactions with related companies.

The Tax Administration’s decision regarding an additional tax assessment is communicated through a Notice of Deficiency (ie, Resolución Determinativa), which the taxpayer can appeal firstly before the same office and then before the Administrative Tax Court. The taxpayer is not supposed to pay the additional tax assessment to challenge the Notice of Deficiency.

If the taxpayer decides not to contest the Tax Administration’s position or if the Administrative Tax Court confirms the additional tax assessment, they have 30 days to pay voluntarily the tax due with interest.

If there is no voluntary payment, the Tax Administration will send a tax bill granting the taxpayer 15 business days to pay the tax owed, plus interest and a late payment fine.

During this term, the taxpayer can pay the full amount or request an authorisation from the tax authorities to pay the amount owed in a maximum of 24 instalments. In Costa Rica, it is not possible for taxpayers to render a guarantee or request an extension. Once the 15-day term is due, the Tax Administration can execute further collection actions, including account and asset seizure measures.

These actions will not be suspended unless the Administrative Court (ie, Tribunal Contencioso Administrativo) grants interim measures in favour of the taxpayer.

Payment of the additional tax assessment is not required for the taxpayer to file a lawsuit against the State to continue discussing the matter, but lodging a claim does not suspend the Tax Administration’s collection actions.

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.

In Costa Rica, the main rules that may determine a tax audit are outlined in a decree (ie, Reglamento sobre Criterios Objetivos de Selección de Contribuyentes para Fiscalización) issued by the Tax Administration to establish the objective criteria that must be followed when selecting tax audit cases.

Beyond this decree, several other factors can trigger a tax audit, including the following.

• Volume of the transaction – commonly, entities that are classified as a large taxpayer are often audited because the adjustments that may result justify the investment of resources allocated to the auditing process.
• 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, as well as companies that constantly report losses.
• 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).
• Random selection – to ensure fairness and unpredictability in the audit process, the Tax Authority may also employ random selection methods.
• Filing of amended returns resulting in a refund – the submission of amended tax returns that generate a refund for the taxpayer can prompt a tax audit. Tax authorities often scrutinise these returns to ensure that the claimed tax credits are legitimate and accurate.
• Inconsistencies in filed returns – discrepancies identified during the cross-referencing of information submitted to tax authorities or other relevant entities can also trigger a thorough audit. These inconsistencies may stem from differences between the taxpayer’s filed returns and data reported by third parties, such as suppliers, customers or financial institutions.

In Costa Rica, the Tax Administration can initiate the tax audit within the four-year statute of limitations period. 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.

Although there are no statutory time limits regarding a tax audit’s duration, on average it can be expected to last approximately 24 months from its start and until the Tax Administration issues the notice of deficiency.

In most cases, the Tax Administration delivers the tax audit findings within six to 12 months after the audit was started. In the event the taxpayer does not agree with the proposed additional tax assessment, the Tax Administration will issue the notice of deficiency in the following six to 12 months.

In general terms, the entire audit procedure is conducted electronically, by requesting the taxpayer and third parties’ electronic data and records.

Historically, it was common for the Tax Authority to conduct audits at the taxpayer’s premises and at the Tax Authority’s offices. However, since the COVID-19 pandemic, there has been a significant shift towards conducting audits electronically through the exchange of emails, a practice that has continued and become the most common method. In certain cases or when specific issues need validation, the Tax Authority may still conduct visits to the taxpayer’s premises.

Finally, at the end of the audit, a hearing is typically held at the Tax Authority’s offices, where the results of the audit are communicated to the taxpayer.

The areas of special attention in tax audits vary depending on the tax that is being audited by the Tax Administration.

• Income Tax audits – whether the taxpayer is a corporate entity or an individual, tax auditors tend to focus on deductible expenses; in general, expenses that had not been reported on previous years or that result from some type of restructuring will likely be subject to analysis during the audit.
• The Tax Administration tends to concentrate its analysis on intercompany transactions, which may lead to transfer pricing or similar adjustments.
• Value Added Tax audits – the tax authorities used to focus on verifying whether the input tax reclaimed by the taxpayer in its tax returns was effectively related to the subjected transactions. 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.

From a strategic point of view, the most important aspect during a tax audit is to provide the tax auditor with clear and concise answers that are consistent with the information and documentation that is being requested and provided throughout the procedure.

The role of legal and accounting advisers is crucial throughout the audit process. 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.

Proper management of the audit procedure can result in its conclusion without issuing a tax adjustment, thus avoiding a lengthy determinative procedure.

Finally, 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 Administration gives notice of the additional tax assessment (ie, notice of deficiency), the taxpayer can directly file a lawsuit before the Administrative Court (ie, Tribunal Contencioso Administrativo) or follow the administrative claim phase, which includes two stages:

• an administrative revoke plea before the same office that issued the Notice of Deficiency; and
• an appeal before the Administrative Tax Court (ie, Tribunal Fiscal Administrativo).

Taxpayers can also skip the administrative revoke plea to go directly before the Administrative Tax Court.

Taxpayers choosing to follow the full administrative claim phase will have 30 business days to file the administrative revoke plea against the notice of deficiency. The Tax Administration will take between six and 12 months to issue a decision.

If the Tax Administration’s decision is to maintain the additional tax assessment, the taxpayer has 30 business days to file the appeal before the Administrative Tax Court.

Once the Tax Administration admits this appeal, the taxpayer will be granted another 30 business days to restate their arguments and present further evidence. The Administrative Tax Court will take between six and 36 months to issue a final decision regarding this appeal.

There is no further administrative claim that can be filed by the taxpayer against this decision, but the dispute may still be taken to a judicial court.

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 lawsuit is the formal document in which the plaintiff sets out its case theory. This claim must contain all the facts and circumstances of the tax audit followed by the Tax Administration, as well as the plaintiff’s reasoning and analysis of the applicable legislation and regulations.

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 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.

In general terms, the judicial procedure before the Administrative 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. In the event there is testimonial evidence offered by the parties, a trial hearing will be held; otherwise, the parties will proceed to deliver their conclusions.
• 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.

In a civil tax litigation process, the most important documentary evidence is the administrative file related to the tax audit performed by the Tax Administration. The documents must be in chronological order and the file must be duly certified by the tax authorities to be presented in court.

Although both documentary and witness evidence are relevant in a tax litigation process, the testimonial evidence is more relevant when the tax aspects under dispute are highly technical or require previous knowledge in a particular field.

Witness and expert evidence helps to explain complex matters to judges. 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 burden of proof rests on the plaintiff, which, depending on the case, may be the taxpayer or the State. Consequently, the plaintiff is responsible for demonstrating that their case theory is correct and consistent with the applicable law.

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.

Similarly, in criminal tax litigation cases, the burden of proof lies with the Prosecutor’s Office, which would be the one in charge of proving that the taxpayer committed tax fraud, in a Criminal Court.

Since there are no specialised judicial tax courts in Costa Rica, pointing out deficiencies in procedural aspects can improve the chances of obtaining a favourable ruling. Judges are more likely to understand issues of nullity related to the legality of the process rather than decide on the merits of thematic areas that may be more technical.

The early submission of documents and evidence can set a strong foundation for the case, particularly in circumstances where the administration has been remiss in its duty to analyse the provided evidence. This can eventually become a strong argument at the judicial level.

In Costa Rica, the only binding jurisprudence is the one issued by the Constitutional Chamber of the Supreme Court. Jurisprudence from lower courts and from the First Chamber of the Supreme Court is not binding for the parties or the Administrative Court. Nevertheless, precedents are relevant for argumentative purposes and to underline the outcome obtained in cases with similar issues or facts.

Doctrine and international guidelines are taken into consideration by Costa Rican national courts in innovative and non-usual matters. OECD Transfer Pricing Guidelines are taken into consideration in cases dealing with related-party transactions.

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.

In a judicial tax litigation, once the Administrative Court has issued its decision, the only resource to challenge this first instance decision is to file an extraordinary appeal before the First Chamber of the Supreme Court.

This extraordinary appeal (ie, recurso de casación) can only be submitted once and the term in which to do so is within 15 business days after the first instance decision was communicated.

This type of appeal is meant to be lodged when the losing party considers that there are significant errors in the Administrative Court’s decision, which may derive from an incorrect analysis of the evidence or from a lack of reasoning, as well as from an improper interpretation of the applicable law.

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 parties to 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 email 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 party 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.

If admitted, the extraordinary appeal will be decided by the First Chamber of the Supreme Court, based on the detailed analysis performed by the justice in charge of the case. Each extraordinary appeal is randomly assigned to one of the justices.

The First Chamber of the Supreme Court is composed of five justices who are appointed by the Costa Rican Congress for a renewable eight-year term.

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.

According to Article 88 of the Tax Code, penalties for omission or inconsistencies may be subject to reduction in the following circumstances.

• Spontaneously, the taxpayer rectifies their non-compliance without any action from the Administration to obtain reparation – in this case, the penalty will be reduced by 75%. If the taxpayer self-assesses and pays the penalty, the reduction will be 80%.
• Where the taxpayer rectifies their non-compliance after the action of the Tax Administration, the penalty will be reduced by 50%.
• After the final act has been notified and within the established period to appeal it, the penalty can be reduced by 25% if the taxpayer accepts the facts presented therein and rectifies the non-compliance.

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.

Nevertheless, inquiries made by taxpayers regarding specific issues are not binding on the Tax Administration, which also entails the risk that it may disregard its own criteria for other cases under a similar factual assumption.

According to Article 119 of the Tax Code, the response to written tax inquiries will have an informative nature, and the interested party will not be able to file any appeal against said response; however, they may do so against the administrative act or acts that are subsequently issued based on the criteria expressed in the response.

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.

Pursuant to Article 81 of the General Tax Code, when a tax audit concludes with an additional tax assessment, the Tax Administration can impose a pecuniary penalty. This tax infringement is an administrative tax offence, punished with a pecuniary penalty of 50%, 100% or 150% of the additional tax assessment.

For purposes of imposing this sanction, the tax authorities should evaluate whether the taxpayer’s actions that led to an inexact payment of the corresponding tax are sanctionable.

However, in practice, when the Tax Administration considers that the exact taxes were not paid, it will communicate such conclusion to the taxpayer through a tax audit findings report. Given this result, in almost all cases the Tax Administration considers that the taxpayer is automatically subject to the administrative tax offence established under Article 81 of the General Tax Code. Therefore, the process to impose the sanction is initiated at the same time as the tax audit findings report is communicated to the taxpayer.

The Tax Administration generally initiates the administrative infringement procedure by the time it reaches a conclusion in the tax audit procedure. The tax authorities’ intention of imposing a pecuniary penalty is usually communicated to the taxpayer together with the tax audit findings report.

In Costa Rica, an administrative infringement procedure cannot evolve into a criminal tax case. The Tax Administration is the only authority entitled to impose the pecuniary penalty contained in Article 81 of the General Tax Code when the exact taxes have not been paid.

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.

The taxpayer can benefit from reductions of potential fines if an upfront payment of both the additional tax assessment and the proposed penalty is made.

• Where the taxpayer rectifies their non-compliance without any action from the Administration to obtain reparation – in this case, the penalty will be reduced by 75%. If the taxpayer self-assesses and pays the penalty, the reduction will be 80%.
• If the additional tax assessment is paid before the Tax Administration issues the notice of deficiency, the penalty will be reduced by 50%. If the taxpayer opts to pay the fine at the same time, it will be reduced by 55%.
• If the additional tax assessment is paid after the Tax Administration issues the notice of deficiency but before the term to file an appeal is due, the penalty will be reduced by 25%. If the taxpayer opts to pay the fine at the same time, it will be reduced by 30%.

In such cases, the taxpayer is required to inform the Tax Administration and provide evidence of the payments made.

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.

Regarding the determinations made in relation to transfer pricing, these are generally the result of disregarding the study presented by the taxpayers.

In practice, the Tax Administration has focused the audits on challenging technical aspects of the review process conducted by the independent firm responsible for the taxpayer’s transfer pricing study. In most cases, it usually questions issues such as the selection of companies for the analysis or the comparative method used.

The Administration usually bases its decision on aspects contained in the Guidelines issued by the OECD, to disregard the content reflected in the transfer pricing study that has been challenged.

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.

Within administrative litigation, taxpayers are not required to hire a lawyer or tax adviser to participate in the different stages of the procedure. Furthermore, the tax authorities do not charge a fee regarding this kind of administrative procedure, neither at the tax audit phase nor at the administrative claim phases.

However, in cases where the taxpayer hires a professional tax adviser or lawyer, the approximate costs to litigate in the administrative phase depend on the amount of additional tax fee the Tax Authority considers is owed by the taxpayer and the complexity of the assessment made by the Tax Authority.

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%.

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.

After the final decision has been established, the losing party is responsible for covering all of the tax litigation fees, and the winning party can request the Administrative Court to set the amount to be paid by the losing party.

In some cases, the judge in charge of this matter may consider that the above-mentioned decree is not applicable and set a different amount based on the judge’s own criteria.

The taxpayer could request interest on the paid amount of additional tax fee (that is found to be void and null), 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.

Data relating to tax court case statistics has not been publicly published.

This data has not been publicly published.

The most important guideline to consider in a tax controversy is to develop a case theory that is consistent with the facts and circumstances, as well as with the evidence to be provided to the authorities. In addition, it is important to present clear and concise arguments that can be understood both by the taxpayer and the authorities, regardless of whether the case is being discussed in the administrative or judicial phase.

The general strategic guidelines in tax controversy are as follows.

• 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.

• When responding to inquiries from the Tax Authority regarding the taxpayer’s transactions, be concise and accurate. Ensure that responses are directly relevant to the questions asked and supported by appropriate documentation.

• When filing any appeals or presenting arguments against the Tax Authority’s findings, bolster the taxpayer’s position with relevant case law. Citing precedents can strengthen arguments and demonstrate the legal basis for the taxpayer’s stance.

• 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.