HONDURAS Law and Practice Contributed by: Alberto Zúniga, Carlos Zúniga and Garhem Padilla, Baker Tilly Honduras
• intercompany financing arrangements; • management and administrative service fees; • royalty and intangible payments; and • distribution and supply chain pricing. The Tax Administration has increased documentation expectations in recent years. In particular, country-by- country reporting became effective from fiscal year 2025 under SAR administrative regulation, introducing additional transparency requirements for multinational groups meeting applicable thresholds. While enforcement remains primarily documentation- driven, transfer pricing is an area of growing technical review by the authorities. 4.5 Challenges to Related-Party Limited Risk Distribution Arrangements Limited risk distribution models are not automatically disallowed under Honduran law. However, the Tax Administration may review whether the allocation of risks and margins is consistent with the arm’s length principle. Where a Honduran entity operates as a dis - tributor with limited functional risk, the authority may examine whether the profit level reflects the functions performed, assets used and risks assumed locally. Challenges typically arise where contractual risk allo - cation does not align with operational reality. 4.6 Local Transfer Pricing Rules and OECD Standards Honduras applies transfer pricing rules based on the arm’s length principle. The domestic framework rec - ognises internationally accepted valuation methods and requires related-party transactions to reflect mar - ket conditions. While conceptually inspired by OECD standards, the Honduran regime operates within a strictly domestic legal environment. It does not rely on treaty-based co-ordination mechanisms, and func - tions independently of bilateral tax agreements. Certain features distinguish the local system in prac - tice. The statutory definition of related parties is broad - er than in many jurisdictions and may extend to family relationships within specified degrees. In addition, the Tax Administration retains flexibility to apply alterna - tive valuation approaches where traditional methods
do not adequately reflect the economic substance of the transaction. Enforcement remains documentation-driven. Although the technical framework references OECD methodol - ogy, Honduras has not incorporated the full OECD administrative infrastructure, particularly regarding dispute resolution and cross-border administrative co-operation. 4.7 Transfer Pricing Disputes and Mutual Agreement Procedures Transfer pricing has become an area of increased technical focus by the Tax Administration, particularly in cross-border group structures. However, because Honduras does not maintain any double taxation trea - ties, there is no mutual agreement procedure (MAP) mechanism available to resolve international transfer pricing disputes through treaty channels. As a result, disputes are resolved exclusively under domestic administrative and judicial procedures. This under - scores the importance of maintaining robust contem - poraneous documentation and defensible intercom - pany policies. 5. Taxation of Non-Local Corporations 5.1 Compensating Adjustments In practice, where a transfer pricing assessment results in an adjustment, the taxpayer may reflect the corresponding accounting correction. However, the process remains strictly domestic and does not involve bilateral co-ordination with foreign tax authori - ties. Given the absence of tax treaties, compensating adjustments do not benefit from mutual agreement mechanisms and must be resolved within the Hondu - ran administrative framework. 5.2 Local Branches and Local Subsidiaries Local branches of foreign corporations and locally incorporated subsidiaries are generally subject to the same corporate income tax rate and compliance obli - gations. Both are taxed on Honduran-source income under the territorial system. A branch does not con - stitute a separate legal entity for corporate law pur -
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