Honduras Transfer Pricing Policy
Honduras transfer pricing policy – Key Transfer Pricing rules in Honduras, documentation obligations, and compliance expectations under the Honduras Revenue Service (Servicio de Administración de Rentas – SAR).
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Introduction to Transfer Pricing in Honduras
Honduras’ transfer pricing framework is governed by the Tax Code and its accompanying regulations, which fully align with the OECD Transfer Pricing Guidelines. The regime requires taxpayers engaged in cross-border related-party transactions or dealings with entities located in tax havens to justify their pricing under the arm’s-length principle. Authorities place strong emphasis on economic substance, functional analysis, and accurate profit allocation for intercompany transactions involving goods, services, intangibles, financing arrangements, and restructuring activities. The Honduran tax authority (SAR) has increased enforcement in recent years, particularly focusing on management fees, royalties, financing structures, and service-related charges. To remain compliant, companies must maintain robust, contemporaneous documentation that demonstrates value creation, supports pricing methodologies, and provides clear evidence for comparability and economic analyses. Timely preparation of documentation also helps mitigate exposure to significant penalties for non-compliance or audit adjustments.
Honduras follows the OECD-based definition of related-party relationships and requires taxpayers to demonstrate compliance with the arm’s-length principle.
A functional analysis covering functions performed, assets employed, and risks assumed (FAR) is essential for determining appropriate pricing.
The regulations require a comparability study using internal or external comparables to support intercompany pricing.
Acceptable methods include CUP, Resale Minus, Cost Plus, TNMM, and Profit Split, with selection based on the “most appropriate method” criteria.
Taxpayers must prepare a Local File-style report, including financial information, benchmarking, and method justification.
Adjustments may be required if transaction results fall outside the arm’s-length range.
Honduras mandates reporting of related-party transactions exceeding the regulatory threshold set by SAR.
Transfer pricing audits have increased, focusing on economic substance, intra-group services, and deductible expenses.
SAR often challenges payments such as royalties, technical services, management fees, and interest where insufficient evidence of benefit or substance exists.
Taxpayers must demonstrate value creation within Honduras and ensure that profit allocation aligns with functions and risks.
Failure to comply can result in material fines, disallowance of deductions, and transfer pricing adjustments.
Honduras mandates reporting of related-party transactions exceeding the regulatory threshold set by SAR.
Transfer pricing audits have increased, focusing on economic substance, intra-group services, and deductible expenses.
SAR often challenges payments such as royalties, technical services, management fees, and interest where insufficient evidence of benefit or substance exists.
Taxpayers must demonstrate value creation within Honduras and ensure that profit allocation aligns with functions and risks.
Failure to comply can result in material fines, disallowance of deductions, and transfer pricing adjustments.
Documentation & Regulatory Requirements
Honduras incorporates BEPS-aligned principles into its transfer pricing legislation, particularly around transparency, documentation, and anti-avoidance.
The rules apply to all cross-border related-party transactions and to dealings involving jurisdictions classified as tax havens or preferential regimes.
Taxpayers must support intercompany pricing using OECD-consistent methods and maintain sufficient evidence of economic substance.
The SAR increasingly applies BEPS concepts such as preventing base erosion through excessive payments for services, royalties, or financing charges.
Local regulations require taxpayers to demonstrate clear alignment between value creation and profit allocation.
Honduras requires multinational enterprise (MNE) groups meeting global revenue thresholds to file a Country-by-Country Report when the ultimate parent is resident in Honduras.
If the parent company is located abroad, a surrogate filing mechanism may apply when exchange-of-information relationships are not in place.
CbCR obligations involve reporting global revenue, profits, employees, assets, taxes paid and accrued, and allocation of economic activity.
Entities within an MNE group must notify SAR regarding the reporting entity and filing jurisdiction.
Non-compliance can result in penalties and increased audit scrutiny by SAR.
Taxpayers must prepare annual transfer pricing documentation supporting the arm’s-length nature of related-party transactions.
Documentation must include a functional analysis (FAR), comparability study, method selection, financial results, and benchmarking.
Companies are required to file a Transfer Pricing Informative Return (Declaración Informativa de Precios de Transferencia) annually when thresholds are met.
SAR focuses heavily on management fees, technical services, royalty payments, financing arrangements, and contract manufacturing activities.
Inadequate documentation can lead to disallowance of deductions, adjustments, or penalties under Honduran tax law.
Honduras is assessing the implementation of OECD Pillar 2 global minimum tax standards as part of its broader tax modernization efforts.
MNEs operating in Honduras may face future obligations related to the 15% global minimum tax, depending on legislative adoption.
Pillar 2 considerations are becoming increasingly relevant for large groups with operations in Honduras due to international reporting and transparency trends.
Expected changes may impact intercompany pricing structures, effective tax rate planning, and documentation requirements.
Businesses should monitor upcoming reforms to ensure alignment between transfer pricing policies and global minimum tax rules.
Transfer Pricing Methods
The Comparable Uncontrolled Price (CUP) method is preferred when reliable market prices exist for identical or highly similar transactions.
SAR accepts both internal and external CUPs, provided adjustments can be made for differences in contractual terms, timing, geography, and economic conditions.
CUP is commonly applied to commodity transactions, distribution of branded goods, and intercompany financing arrangements.
Taxpayers must document the comparability criteria, source of price data, and justification for any adjustments.
CUP is closely scrutinized where price volatility or related-party influence may distort market-based outcomes.
Resale Minus is applicable when a Honduran entity purchases products from a related party and resells them to independent customers without substantial value-add.
The method establishes arm’s-length pricing by deducting an appropriate gross margin from the final resale price.
SAR evaluates the functional profile of the reseller, including risks, working capital levels, and routine distribution functions.
Benchmarking must reflect comparable distributors operating in similar markets or industries.
Commonly used for consumer goods, electronics, pharmaceuticals, and fast-moving retail products.
Cost Plus is suitable for manufacturing, shared services, and contract-based operations performed by a Honduran entity for related parties.
The method calculates an arm’s-length markup over production or service costs based on the entity’s functions, assets, and risks.
SAR requires clear documentation of cost structures, allocation drivers, and traceability to audited financials.
The markup must be benchmarked against comparable service providers or manufacturers.
Often applied to toll manufacturing, administrative services, IT support services, and back-office operations.
The Transactional Net Margin Method (TNMM) is widely used due to limited availability of detailed local comparables.
TNMM evaluates arm’s-length pricing by comparing net margins (e.g., operating margin, return on assets, return on costs) to those of similar independent companies.
SAR expects taxpayers to justify profit-level indicators, search criteria, geographic scope, and screening process.
TNMM is common for distributors, service providers, and routine manufacturing entities with low-risk profiles.
Detailed benchmarking studies are required to withstand audit scrutiny.
Profit Split is applied when transactions are highly integrated and cannot be evaluated separately using traditional methods.
SAR considers this method appropriate for intercompany dealings involving unique intangibles, shared assets, or substantial cross-border collaboration.
Contributions of each entity—functions, assets, risks, and intangibles—must be analyzed to determine appropriate profit allocation.
Both contribution-based and residual profit split approaches may be used depending on the nature of the arrangement.
Typically relevant for financial services, digital services, R&D centers, and joint development of intellectual property.
Analytical & Compliance Support
Comparability analysis is central to demonstrating that related-party transactions in Honduras follow the arm’s-length principle.
SAR requires taxpayers to analyze functional profiles, transaction characteristics, contractual terms, economic circumstances, and market conditions.
Honduran taxpayers often rely on regional or Latin American comparables due to limited local public financial data.
Adjustments for working capital, risk levels, and accounting differences must be clearly justified and consistently applied.
Detailed comparability documentation strengthens the credibility of transfer pricing reports during audit reviews.
A comprehensive Functions, Assets, and Risks (FAR) analysis is mandatory to determine the true economic role of each entity within an intercompany structure.
FAR evaluation must reflect operational reality—including procurement, manufacturing, distribution, strategic management, financing, and intellectual property utilization.
SAR places particular emphasis on characterizing entities as routine or entrepreneurial based on their risk-taking capacity and asset ownership.
Asset analysis must include both tangible resources and intangibles such as trademarks, proprietary technology, or process know-how.
Proper FAR analysis supports selection of the most appropriate transfer pricing method and ensures alignment with global value chain outcomes.
Trends, Challenges & Real-World Impacts
Limited availability of local public financial data makes it difficult to identify Honduran comparables, pushing taxpayers toward regional benchmarking.
SAR frequently questions loss-making entities, especially distributors and service providers, requiring strong economic justifications.
Documentation inconsistencies across fiscal years often trigger deeper audits and adjustment risks.
Multinationals face challenges aligning Honduran TP outcomes with group policies due to differing regional regulations.
Intercompany service charges and management fees remain among the most heavily scrutinized areas by authorities.
Increasing alignment with OECD Transfer Pricing Guidelines, reflected in SAR’s expanding audit focus on substance and economic reality.
Heightened attention toward DEMPE-related intangibles and the allocation of profits tied to IP-driven business models.
Growing reliance on pan-regional Latin American benchmarking sets to improve comparability reliability.
More companies performing year-end adjustments to maintain arm’s-length positioning and mitigate potential disputes.
Enhanced scrutiny of intercompany loans as interest rates fluctuate across global markets.
SAR has intensified enforcement around contemporaneous documentation, with penalties applied for delayed or incomplete submissions.
Recent cases show increased focus on testing routine entities (distributors, contract service providers) using TNMM with tighter comparability filters.
Ongoing government discussions indicate potential modernization of TP rules to improve transparency and align further with international standards.
Authorities have announced targeted audits for industries with high levels of intercompany transactions, including manufacturing and retail.
New guidance encourages taxpayers to strengthen evidentiary support for cross-border service benefit tests.
Global inflation and supply chain disruptions have increased volatility in profit margins, requiring more robust economic adjustments.
Currency fluctuations have influenced the pricing of cross-border financing and import-based transactions.
Reshoring trends in the Americas are reshaping value chains, prompting taxpayers to revisit functional characterizations.
Digital transformation and remote service delivery have raised new questions related to value creation and risk allocation.
Businesses must reassess their TP policies as multinational groups centralize functions to improve efficiency and cost control.
Use Cases by Business Size & Industry
Startups in Honduras often rely on shared group services—such as IT development, marketing, and administrative support—making clear service documentation critical.
Early-stage businesses typically operate with low or negative margins, so they must substantiate losses through commercial rationale and functional analysis.
Intercompany financing is common during the growth phase, requiring proper interest rate benchmarking to avoid SAR scrutiny.
Startups participating in regional or global supply chains must ensure transfer pricing aligns with the group’s value creation and risk allocation model.
Compliance with contemporaneous documentation from the early years helps reduce audit risks as the business scales.
SMEs engaged in import and distribution face close monitoring of gross margins, making benchmarking essential to support arm’s-length pricing.
Many SMEs rely on intercompany service arrangements; proving benefit and cost-allocation logic is key to avoiding adjustments.
Honduran SMEs involved in manufacturing or assembly operations must have clearly defined FAR profiles to justify routine returns.
Cross-border transactions involving management fees, royalties, and shared services are frequently audited, requiring precise economic support.
Maintaining consistent documentation each fiscal year helps SMEs demonstrate compliance and reduces the likelihood of disputes with SAR.
Dispute Resolution & Advance Agreements
Honduras currently does not operate a formal APA program; however, businesses may engage informally with the SAR (tax authority) for preliminary guidance on complex transfer pricing matters.
Multinationals often rely on robust economic analyses and consistent documentation to minimize the need for APAs in the absence of a formal mechanism.
Cross-border groups operating in manufacturing, distribution, or shared services benefit from proactive TP planning to avoid future disputes.
When Honduras introduces an APA framework in the future, taxpayers with strong documentation and clear value-chain mapping will be best positioned for streamlined approval.
The SAR closely reviews payments such as management fees, royalties, and intercompany services—making clear benefit tests essential to reduce audit exposure.
Maintaining year-on-year consistency in benchmarking, functional analysis, and economic support is critical for reducing the likelihood of adjustments.
Companies can reduce dispute risks by ensuring intercompany contracts are properly aligned with operational realities and financial results.
Early engagement with SAR auditors and transparent sharing of documentation helps resolve questions before they escalate into formal disputes.
Multinationals who implement strong compliance frameworks experience fewer disputes and smoother audit processes.
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This is general information only and not professional advice. Consult a professional before acting.