Honduras

Transfer Pricing Regulations in Honduras

Since September 18, 2015, Honduran taxpayers have been required to report and value their transactions with both domestic and foreign related parties and/or with companies covered by Special Regimes that enjoy tax benefits, through the Annual Informative Affidavit on Transfer Pricing filed with the Revenue Administration Service (SAR).

Transfer pricing rules in Honduras are governed by Decree No. 232-2011 (Articles 1 through 22), effective as of January 1, 2014, which establishes the Transfer Pricing Regulation Law (LRPT), Executive Decree No. 027-2015, effective as of September 18, 2015 (Articles 1 through 40), Agreement DEI-SG-004-2016, and Article 113 of the Tax Code.

Transfer Pricing Rules in Honduras

For the purposes of transfer pricing regulations, related or affiliated parties are considered to be individuals or legal entities, whether or not they are residents of Honduras, if any of the following conditions are met:

1. An individual or legal entity participates directly or indirectly in the management, control, or capital of the other company, including participation exercised through a relationship that may be established between individuals in accordance with the provisions of Title IX of the Family Code and its amendments;

1. The same person or persons participate directly or indirectly in the management, control, or capital of both companies, including participation exercised through the bond or relationship that may be established between individuals in accordance with the provisions of Title IX of the Family Code and its amendments;

1. A natural or legal person resident in the country who has permanent establishments abroad;

1. A permanent establishment located in Honduras whose parent company is resident abroad and which has another permanent establishment of its own; or a natural person, partnership, or company related to it;

• When it enjoys exclusivity as an agent, distributor, or concessionaire for the sale or purchase of goods, services, or rights on behalf of another party, provided that the contractual relationship between them is preferential in nature compared to those ordinarily granted in contracts of the same type;

• When preferential contractual terms are agreed upon, as compared to those granted to third parties under similar circumstances;

• When there is financial or economic dependence arising from joint venture agreements or trust deposits, among others;

• The counterparty is incorporated in a country or territory classified as a tax haven, as may be determined based on OECD publications.

Considering the provisions of Articles 3 and 4 of the Transfer Pricing Regulation Act, a natural or legal person is deemed to participate directly or indirectly in the management, control, or capital of a company when any of the following circumstances apply:

• It owns, directly or indirectly, more than fifty percent (50%) of the company’s capital stock;

• It has the ability to influence the company’s business decisions; and,

• In particular, a “unit of decision-making” is deemed to exist when a company is a partner in another company and, with respect to the latter company, is in any of the following situations:

• It holds the majority of voting rights. For this purpose, this condition shall be deemed to be met when the majority of the members of the governing body of the controlled company are members of the governing body or senior executives of the controlling company or of another company controlled by the latter, or when two (2) companies each form a decision-making unit with respect to a third company in accordance with the provisions of this subsection, all such companies shall constitute a decision-making unit.
• Has the power to appoint or remove the majority of the members of the board of directors.
• It may, by virtue of agreements entered into with other shareholders, hold the majority of voting rights.
• Has appointed, exclusively through its own votes, the majority of the members of the board of directors.

Formal Obligations: Informative Affidavits

Annual Informative Affidavit

Article 17 of the Transfer Pricing Regulation Law (LRPT) establishes that the taxpayer must file a transfer pricing affidavit with the Tax Authority in Honduras, together with the tax return. Additionally, Article 30 of the LRPT sets forth the following conditions that taxpayers must meet to be required to file an Annual Informative Affidavit on Transfer Pricing.

• Taxpayers classified as medium-sized and large enterprises that have conducted commercial and financial transactions with related parties, both domestic and foreign. According to the Instructions for the Affidavit for DET LIVE, only those medium- and large-sized taxpayers whose intercompany transactions exceed 250,000 U.S. dollars during the fiscal year are required to file.
• Individuals or legal entities that conduct commercial or financial transactions with entities covered by special regimes that enjoy tax benefits.
• Taxpayers who have conducted commercial and financial transactions with entities classified as tax havens.
• Taxpayers who do not fall into the above categories but who have conducted transactions within the same tax period totaling more than US$1,000,000 (or its equivalent) with domestic and foreign related parties.

Transfer Pricing Technical Study or Supporting Documentation

Taxpayers required to file the Annual Informative Transfer Pricing Affidavit must prepare transfer pricing supporting documentation annually, detailing all commercial and financial transactions conducted between related or affiliated parties, including the analysis, method used, and valuation results demonstrating that the price, rate, or margin is in accordance with the arm’s-length principle. The Technical Transfer Pricing Study must be completed before the tax return filing deadline and must be filed only if requested by the SAR.

Deadline for Filing Annual Tax Returns.

The transfer pricing study must be prepared in advance and used to properly file and complete the transfer pricing information return, which is officially due on April 30 of each year.

For a special fiscal year that does not end in December, taxpayers must file the Transfer Pricing Return within three months after the end of the fiscal year.

Penalties for Noncompliance

Article 35 (Violations), in conjunction with Article 36 (Penalty System) of the Transfer Pricing Law (LRPT), stipulates the following violations and penalties:

• If taxpayers report taxable income that is lower than what it would have been under arm’s-length conditions, a 15% penalty applies to the corresponding income adjustment.
• If taxpayers fail to provide correct information or do not report the correct taxable income, the fines will exceed 30% or USD 20,000.
• If taxpayers fail to comply with any other provision of the Transfer Pricing Law, a fine of USD 5,000 is imposed.
• If a taxpayer fails to provide information, or provides false, incomplete, or inaccurate information in response to a request from the SAR, a penalty of USD 10,000 is imposed.