On March 19th, the SAR-53-2023 Agreement was published in the Official Gazette La Gaceta. This agreement addresses aspects related to transfer pricing and has generated great anticipation and curiosity among taxpayers in the country subject to this obligation.
To unravel the meaning and implications of this new regulation, our tax partner Carlos Galindo will guide us through the intricacies of the SAR-53-2023 Agreement, explaining how it directly impacts Honduran taxpayers and what measures they should take to comply with the new tax obligations.
In the changing international tax landscape, it is vital for companies to understand and adapt to new regulations to avoid penalties and ensure proper compliance. In this sense, the SAR-53-2023 Agreement stands as a highly relevant norm in our Honduran tax legislation as it deals with transfer pricing.
What is the SAR-53-2023 Agreement?
The SAR-53-2023 Agreement establishes definitions, obligations, and provides guidelines for formats and contents of the Country-by-Country report, among other aspects. This regulation is related to the submission of country-by-country reports for multinational groups with a presence in Honduras. Its main objective is to provide tax authorities with detailed information about the structure and financial operations of these groups to assess the risks associated with transfer pricing and other practices that may affect the taxable base in the country.
What does it imply for companies?
For companies that are part of multinational groups and have a presence in Honduras, this agreement implies the obligation to submit a Country-by-Country Report detailing key financial and operational information. This report must comply with the standards defined in the agreement and be submitted to the Tax Administration within the established deadlines.
What is the impact on transfer pricing?
The SAR-53-2023 Agreement has a direct impact on determining transfer prices between different entities of a multinational group. By providing tax authorities with an overview of the financial operations of the group, it aims to prevent tax evasion practices and ensure that transfer prices are fair and consistent with the principle of full competition.
Key Aspects of the SAR-53-2023 Agreement
The SAR-53-2023 Agreement establishes key obligations related to the submission of country-by-country reports for multinational groups operating in Honduras. Here are some of the most important points:
Clear definitions: The agreement clearly defines terms such as "Group," "Multinational Group," "Entity Member," "Reporting Entity," among others, to establish a common understanding.
Information submission obligation: It establishes the obligation for the Ultimate Parent Entity and other Entity Members of a Multinational Group resident in Honduras to submit a Country-by-Country Report to the relevant Tax Administration.
Report format and content: It defines the content of the Country-by-Country Report, including aggregated information on revenues, taxes, employees, and assets in each jurisdiction where the Multinational Group operates.
Submission form and deadline: It establishes that the Country-by-Country Report must be submitted in XML format, following the OECD's standard structure, within 12 months after the end of the Reporting Fiscal Year.
Use and confidentiality of information: It details that the Tax Administration will use the information from the Country-by-Country Report to assess risks related to transfer pricing and BEPS (Base Erosion and Profit Shifting), preserving the confidentiality of the information.
Penalties for non-compliance: It establishes penalties for non-compliance with the submission of the Country-by-Country Report or required notification, according to the provisions of the Tax Code and the Transfer Pricing Regulation Law.
Validity: The agreement comes into effect for Reporting Fiscal Years commencing on or after January 1, 2025.
These points are fundamental to understanding the obligations and responsibilities of multinational companies with a presence in Honduras regarding transfer pricing and tax compliance.
Country-by-Country Report
The Country-by-Country Report, according to the SAR-53-2023 Agreement, is a document that provides tax authorities with a detailed view of the financial operations and business structure of a Multinational Group in each jurisdiction where it operates. The main purpose of this report is to assist authorities in assessing risks related to transfer pricing and other tax aspects, as well as to prevent erosion of the tax base and profit shifting (BEPS).
The Country-by-Country Report must contain aggregated information on various financial and operational elements, such as revenues, taxes paid and accrued, declared capital, undistributed profits, number of employees, and tangible assets in each jurisdiction. Additionally, it must include a detailed list of all Entity Members of the Multinational Group, specifying their tax residency jurisdiction and the nature of their main economic activities.
The implication of this report is significant, as it enables tax authorities to assess the adequacy and fairness of transfer prices within the Multinational Group, as well as identify potential risks of tax evasion or BEPS practices. This can lead to greater tax transparency and certainty for tax authorities in determining taxes owed by multinational companies.
As for who is subject to this reporting, it primarily includes the Ultimate Parent Entities and other Entity Members of a Multinational Group that are tax residents in Honduras. These entities must submit the Country-by-Country Report to the relevant Tax Administration within the deadline established in the agreement, which is usually within 12 months after the end of the Reporting Fiscal Year of the Multinational Group
For more information on how this innovation may affect your operation or investment in Honduras, the Galindo & Asociados team the Galindo & Asociados team is at your disposal.
Carlos Galindo
Socio de Impuestos
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