No provisions exist for group taxation in Honduras.
Transfer Pricing Law was issued by the Honduras National Congress through Decree 232-2011 on 10 December 2011 to regulate every commercial and financial transaction performed between related parties. Transfer Pricing Regulations were later issued by Agreement 027-2015 on 18 September 2015 establishing and expanding the procedures for the application of transfer pricing legislation in Honduras.
The scope of application of this law reaches any operation that is performed between natural or entities domiciled or resident in Honduras with related parties and those under a special regime who enjoy fiscal benefits.
The Honduras tax authority allows taxpayers the request of an Advance Price Agreement (APA) to establish the values for the commercial or financial transactions performed with related parties prior the implementation of such transactions and for a specific time.
For tax effects, it is considered that two or more individuals or legal entities, domiciled or not, are related parties when:
- An individual, entity, or corporation participates, directly or indirectly, in the direction, control, or capital of the other.
- Same individuals, entities, or corporations participate, directly or indirectly, in the direction, control, or capital of one of them.
- They constitute a decision unit.
- They conduct direct or indirect commercial or financial transactions, indirect being those transactions that aim to reduce the income tax base, amongst Honduras resident or domiciled individuals or entities located within another jurisdiction qualified as a tax haven.
- They have the same counsellors or administrators.
When participation is defined in terms of capital or control over voting rights, a direct or indirect participation of more than 50% will be required in either case.
Comparability, for transfer pricing matters, is known as the analysis of two or more assets (tangible or intangible), services, or similar companies with the purpose of revealing their correlation and likeness and, in this manner, to be able to determine if it is possible to calculate or adjust the material differences that affect their price.
Among the comparability items we should take into account are included the following:
- Features of the good or service.
- Operations or activities carried out, assets used, and risks undertaken.
- Contractual terms.
- Economic or market circumstances economics.
- Business strategies.
Selection and hierarchy of the methods to apply the arm’s-length principle
According to Decree 232-2011 and the Organisation for Economic Co-operation and Development (OECD) Guidelines, to determine if the operations are in accordance with the arm’s-length principle, any of the following methods should be applied:
- Comparable Uncontrolled Price Method (CUP).
- Resale Price Method (RPM).
- Cost Plus Method (‘Cost Plus’).
Based on income
- Profit Split Method (PSM).
- Transactional Net Margin Method (TNMM).
Honduras Transfer Pricing Legislation considers the application of a sixth method for goods traded on transparent international markets. Taxpayers may apply methods other than the above-mentioned methods, provided it can be demonstrated that it cannot apply any of the above methods in a reasonable and reliable way to determine the conditions of the free and full arm’s-length principle.
Range of prices on arm’s length
From the application of any transfer pricing method, one may obtain a range of prices whenever there exists two or more comparable transactions. These methods will be adjusted through the application of statistic methods, among them can be included the use of the interquartile range. Other statistic methods may be used in the frame of an amicable proceeding.
Income taxpayers that are related parties and perform commercial and financial transactions among them have the obligation to:
- Determine for tax purposes their income, costs, and deductions with the application of prices and profit margins that would be implemented in comparable commercial and financial transactions with third parties.
- Notify to the tax authority the selected method to determine the commercial and financial transactions value in arm’s-length conditions.
- File a transfer pricing return before the tax authority with sufficient analysis to assess the transactions performed with related parties.
At the present time, there are no provisions for thin capitalisation in Honduras.
Controlled foreign companies (CFCs)
At the present time, there are no provisions in the Honduras legislation for CFCs.