In an appeal to the Supreme Court in Costa Rica, Nestlé claimed that the basis for an arm’s length adjustment was unconstitutional, since the arms length principle as described in the OECD transfer pricing guidelines had not been incorporated into the laws of Costa Rica.
Judgement of the Supreme Court
The Court dismissed the appeal of Nestlé.
“The contested Guideline does not establish or impose a single method of transfer pricing analysis, so that, in the absence of a law, the autonomy of tax law allows for the determination of the tax payable to resort to the provisions of Articles 8 and 12 of the Code of Tax Rules and Procedures, without prejudice to the possibility of admitting “other -better- techniques”. What is important is that the contested Interpretative Guideline does not aim to eliminate other multiple scenarios arising from different forms of company organisation, but is directed at transfer pricing between related companies. Even if the legislator may adopt a certain technique or several techniques to regulate a certain behaviour of companies, or recognise legal practices to reduce taxes, it is possible to admit that if there are clashes with tax legislation and with reality, in the absence of a law, it is ultimately up to the judge to decide on the correct application of the technical rules. Thus, in the absence of any particular legislation, this fact does not prevent the parties in conflict from presenting their arguments, producing evidence and demonstrating the need to apply other criteria that allow for the non-application of the technical rule that adopts the guideline in question, or of another possible method, a situation that evidently makes the discussion a matter of ordinary legality. For all of the above reasons, the action should be dismissed, as it is in fact being dismissed.”
Costa Rica vs Nestlé April 2012 SP