Costa Rica
This report analyses the implementation of the AEOI Standard in Costa Rica with respect to the requirements of the AEOI Terms of Reference. It assesses both the legal frameworks put in place to implement the AEOI Standard and the effectiveness of the implementation of the AEOI Standard in practice.
The methodology used for the peer reviews and that therefore underpins this report is outlined in Chapter 2.
Overall findings
AEOI legal framework
Costa Rica’s legal framework implementing the AEOI Standard is not in place in accordance with the requirements of the AEOI Terms of Reference. While Costa Rica’s international legal framework to exchange the information with all of Costa Rica’s Interested Appropriate Partners (CR2) is consistent with the requirements, its domestic legislative framework requiring Reporting Financial Institutions to conduct the due diligence and reporting procedures (CR1) has significant deficiencies in areas that are fundamental to the proper functioning of the AEOI Standard. More specifically, deficiencies have been identified with respect to Costa Rica’s enforcement framework.
Effectiveness of AEOI in practice
Costa Rica’s implementation of the AEOI Standard is not compliant with the requirements of the AEOI Terms of Reference to ensure the effectiveness of the AEOI Standard in practice. While Costa Rica is partially compliant with respect to exchanging the information in an effective and timely manner (CR2), there are fundamental issues with respect to ensuring that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures (CR1).
Overall rating in relation to the effectiveness in practice: Non-Compliant
General context
Costa Rica commenced exchanges under the AEOI Standard in 2018 on a non-reciprocal basis, then in 2020 started to reciprocally exchange information. As a preventive action to address the cyber-attack on the Ministry of Finance occurred in mid-April 2022, Costa Rica requested to be temporarily included on the list of non-reciprocal jurisdictions in order to send but not to receive information.
In order to provide for Reporting Financial Institutions to collect and report the information to be exchanged, Costa Rica:
enacted Article 106 quárter of the General Tax Code Law No. 4755; and
introduced the Resolution No. DGT-R-006-2017, Resolution No. DGT-R-006-2018, Resolution No. DGT-R-16-2020 and Resolution No. DGT-R-27-2021.
Under this framework Reporting Financial Institutions were required to commence the due diligence procedures in relation to New Accounts from 1 January 2017. With respect to Preexisting Accounts, Reporting Financial Institutions were required to complete the due diligence procedures on High Value Individual Accounts and on Lower Value Individual Accounts and Entity Accounts by 31 December 2017.
Following the initial Global Forum review, Costa Rica amended its legislative framework to address issues identified, the last of which was effective from 19 July 2021.
With respect to the exchange of information under the AEOI Standard, Costa Rica is a Party to the Convention on Mutual Administrative Assistance in Tax Matters and activated the associated CRS Multilateral Competent Authority Agreement in time for exchanges in 2018.
Table 1 sets out the number of Financial Institutions in Costa Rica that reported information on Financial Accounts in 2021 as defined in the AEOI Standard (essentially because they maintained Financial Accounts for Account Holders, or that were related to Controlling Persons, resident in a Reportable Jurisdiction). It also sets out the number of Financial Accounts that they reported in 2021. In this regard, it should be noted that Costa Rica requires the reporting of Financial Accounts held by non-residents based on a prescribed list of exchange partners and some accounts maybe required to be reported more than once (e.g. jointly held accounts or accounts with multiple related Controlling Persons), which is reflected in the figures below. These figures provide key contextual information to the development and implementation of Costa Rica’s administrative compliance strategy, which is analysed in the subsequent sections of this report.
Table 2 sets out the number of exchange partners to which information was successfully sent by Costa Rica in the past few years (including where the necessary frameworks were in place, containing an obligation on Reporting Financial Institutions to report information, but no relevant Reportable Accounts were identified). These figures provide key contextual information in relation to Costa Rica’s exchanges in practice, which is also analysed in subsequent sections of this report.
In order to provide for the effective implementation of the AEOI Standard, in Costa Rica:
the Tax Administration of Costa Rica (the tax authority) is responsible for exchanging the information with Costa Rica’s exchange partners (although the legal basis to carry out all of the activities needed to ensure the effective implementation of the due diligence and reporting obligations by Reporting Financial Institutions is underway to be decided);
the technical solutions necessary have been put in place to receive and validate the information reported by Reporting Financial Institutions using the “Sistema de Intercambio de Información Fiscal (SIIF)”, which is an IT platform for Reporting Financial Institution to pre-validate and submit data as required by the AEOI Standard and for the Tax Administration to validate and consolidate the data submitted by the Reporting Financial Institutions before it is exchanged; and
the Common Transmission System (CTS) is used for the exchange of the information, along with the associated file preparation and encryption requirements.
It should be noted that the review of Costa Rica’s legal frameworks implementing the AEOI Standard concluded with the determination that Costa Rica’s domestic legal framework is Not In Place and its international legal framework is In Place. This has been taken into account when reviewing the effectiveness of Costa Rica’s implementation of the AEOI Standard in practice and where particular identified gaps in Costa Rica’s legal frameworks directly impact its implementation in practice, these are mentioned below.
Findings and conclusions on the legal frameworks
The detailed findings and conclusions on the AEOI legal frameworks for Costa Rica are below, organised per Core Requirement (CR) and then per sub-requirement (SR) as extracted from the AEOI Terms of Reference (see Annex C).
CR1 Domestic legal framework: Jurisdictions should have a domestic legislative framework in place that requires all Reporting Financial Institutions to conduct the due diligence and reporting procedures in the CRS, and that provides for the effective implementation of the CRS as set out therein.
Costa Rica’s domestic legislative framework is not in place as required as it does not contain key aspects of the CRS and its Commentary. Significant deficiencies have been identified relating to the framework to enforce the requirements (SR 1.4). More specifically, Costa Rica’s legislative framework does not require records to be kept by Financial Institutions in accordance with the AEOI Standard and it does not apply sanctions for non-compliance in all cases including where self-certifications have not been obtained for New Accounts.
SR 1.1 Jurisdictions should define the scope of Reporting Financial Institutions consistently with the CRS.
Costa Rica has defined the scope of Reporting Financial Institutions in its domestic legislative framework in accordance with the CRS and its Commentary.
SR 1.2 Jurisdictions should define the scope of Financial Accounts and Reportable Accounts consistently with the CRS and incorporate the due diligence procedures to identify them.
Costa Rica has defined the scope of the Financial Accounts that are required to be reported in its domestic legislative framework and incorporated the due diligence procedures that must be applied to identify them in accordance with the CRS and its Commentary.
SR 1.3 Jurisdictions should incorporate the reporting requirements contained in Section I of the CRS into their domestic legislative framework.
Costa Rica has incorporated the reporting requirements in its domestic legislative framework in accordance with the CRS and its Commentary.
SR 1.4 Jurisdictions should have a legislative framework in place that allows for the enforcement of the requirements of the CRS in practice.
Costa Rica does not have a legislative framework in place to enforce the requirements in a manner that is consistent with the CRS and its Commentary, as significant deficiencies have been identified. More specifically, Costa Rica’s domestic legislative framework:
does not include rules requiring Reporting Financial Institutions to keep records for the duration of time specified in the requirements;
does not include rules that ensure that a Reporting Financial Institution is sanctioned for failing to apply due diligence procedures in accordance with the requirements; and
does not incorporate measures to ensure that self-certifications are always obtained and validated for New Accounts as required.
These are key elements of the required enforcement framework and are therefore material to the proper functioning of the AEOI Standard.
Costa Rica should amend its domestic legislative framework to require Reporting Financial Institutions to maintain records for at least five years from the deadline to report the information, in accordance with the AEOI Standard.
Costa Rica should amend its domestic legislative framework to include sanctions for failure to comply with the due diligence and reporting procedures in accordance with the AEOI Standard.
Costa Rica should amend its domestic legislative framework to include strong measures to ensure that valid self-certifications are always obtained for New Accounts and, more specifically, in the limited circumstances where a valid self-certification is permitted to be obtained after the opening of a New Account.
CR2 International legal framework: Jurisdictions should have exchange relationships in effect with all Interested Appropriate Partners as committed to and that provide for the exchange of information in accordance with the Model CAA.
Costa Rica’s international legal framework to exchange the information is in place, is consistent with the Model CAA and its Commentary and provides for exchange with all of Costa Rica’s Interested Appropriate Partners (i.e. all jurisdictions that are interested in receiving information from Costa Rica and that meet the required standard in relation to confidentiality and data safeguards) (SRs 2.1 – 2.3).
SR 2.1 Jurisdictions should have exchange agreements in effect with all Interested Appropriate Partners that permit the automatic exchange of CRS information.
Costa Rica has exchange agreements that permit the automatic exchange of CRS information in effect with all its Interested Appropriate Partners.
SR 2.2 Such an exchange agreement should be put in place without undue delay, following the receipt of an expression of interest from an Interested Appropriate Partner.
Costa Rica put in place its exchange agreements without undue delay.
SR 2.3 Jurisdictions should ensure that the exchange agreements in effect provide for the exchange of information in accordance with the requirements of the Model CAA.
Costa Rica’s exchange agreements provide for the exchange of information in accordance with the requirements of the Model CAA.
Assessed jurisdiction’s comments on the assessment of its legal frameworks
The Tax Administration and the Global Forum Secretariat have jointly developed an Action Plan that details the measures that must be undertaken by Costa Rica to address the AEOI peer reviews’ recommendations, both in respect to the legal framework and the effectiveness in practice.
This Action Plan is based on four pillars of action which include: i) legal framework reforms, ii) elaboration of internal procedures to control compliance and to prevent reporting circumvention, to undertake risk assessment and to train staff, iii) improvements to the technological system, and iv) actions to improve relations with Reporting FIs.
We renew our commitment with tax transparency in all of its modalities, and in turn, we are always open to receive comments to improve our internal proceedings in order to provide information with the best quality.
Findings and conclusions in relation to effectiveness in practice
The detailed findings and conclusions in relation to effectiveness in practice of AEOI for Costa Rica are below, organised per Core Requirement (CR) and then per sub-requirement (SR) as extracted from the AEOI Terms of Reference (see Annex C).
CR1 Effectiveness in practice: Jurisdictions should ensure that in practice Reporting Financial Institutions correctly implement the due diligence and reporting procedures, which includes a requirement for jurisdictions to have in place an administrative framework to ensure the effective implementation of the CRS.
Costa Rica’s implementation of the AEOI Standard is non-compliant with respect to ensuring that Reporting Financial Institutions are correctly conducting the due diligence and reporting procedures. More specifically, while Costa Rica is meeting expectations with respect to collaboration with its exchange partners to ensure effectiveness (SR 1.6), there are fundamental issues with respect to ensuring effectiveness in a domestic context, such as through having an effective administrative compliance framework and related procedures (SR 1.5). Costa Rica should continue its implementation process to ensure its effectiveness, including by addressing the recommendations made.
SR 1.5 Jurisdictions should ensure that in practice Reporting Financial Institutions identify the Financial Accounts they maintain, identify the Reportable Accounts among those Financial Accounts, as well as their Account Holders, and where relevant Controlling Persons, by correctly conducting the due diligence procedures and collect and report the required information with respect to each Reportable Account. This includes having in place:
an effective administrative compliance framework to ensure the effective implementation of, and compliance with, the CRS. This framework should:
be based on a strategy that facilitates compliance by Reporting Financial Institutions and which is informed by a risk assessment in respect of the effective implementation of the CRS that takes into account relevant information sources (including third party sources);
include procedures to ensure that Financial Institutions correctly apply the definitions of Reporting Financial Institutions and Non-Reporting Financial Institutions;
include procedures to periodically verify Reporting Financial Institutions’ compliance, conducted by authorities that have adequate powers with respect to the reviewed Reporting Financial Institutions, with procedures to access the records they maintain; and
effective procedures to ensure that Financial Institutions, persons or intermediaries do not circumvent the due diligence and reporting procedures;
effective enforcement mechanisms to address non-compliance by Reporting Financial Institutions;
strong measures to ensure that valid self-certifications are always obtained for New Accounts;
effective procedures to ensure that each, or each type of, jurisdiction-specific Non-Reporting Financial Institution and Excluded Account continue to present a low risk of being used to evade tax; and
effective procedures to follow up with a Reporting Financial Institution when undocumented accounts are reported in order to establish the reasons why such information is being reported.
In order to ensure that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures, Costa Rica implemented some of the requirements in accordance with expectations. However, fundamental issues were identified. The key findings were as follows:
While Costa Rica has conducted communication activities to help promote compliance, including publishing guidance and holding virtual meetings to assist Reporting Financial Institutions in understanding the due diligence and reporting obligations under the AEOI Standard, it lacks a clear overarching compliance strategy to ensure that Financial Institutions have correctly implemented the requirements under the AEOI Standard in practice. This includes the lack of defined procedures to review and verify compliance, including in-depth reviews and the inspection of records held by Reporting Financial Institutions. Furthermore, in practice, no dedicated AEOI-related compliance activities have yet been undertaken.
While Costa Rica uses the AEOI reporting system “SIIF” to automatically identify the Reporting Financial Institutions that have not reported information in a reporting year, this is limited to Financial Institutions that have registered with the SIIF for AEOI purposes. Costa Rica does not have procedures to identify Reporting Financial Institutions that have failed to register with the SIIF and therefore lacks procedures to identify the full population of Reporting Financial Institutions in Costa Rica, including non-regulated entities.
Costa Rica has allocated financial, technical and human resources at the Tax Administration for the implementation of the AEOI Standard, although the adequacy of its resourcing is unclear. More generally, Costa Rica was unable to demonstrate how it verifies compliance by Reporting Financial Institutions and effectively addresses non-compliance. This reflects both the lack of clarification under Costa Rica’s legal framework over the sufficiency of the tax authority’s legal basis to conduct the verifications and reviews and its lack of a legal basis to require Reporting Financial Institutions to keep records in relation to the AEOI Standard and to impose sanctions for failure to comply with the due diligence and reporting procedures. This also applies to Costa Rica’s ability to ensure that valid self-certifications are obtained for New Accounts when they are not obtained upon account opening.
Costa Rica also does not have procedures to follow up with Reporting Financial Institutions when undocumented accounts are reported, nor does it have procedures to address circumvention of the due diligence and reporting procedures by Financial Institutions, persons or intermediaries.
It is noted that Costa Rica does not have a jurisdiction-specific list of Non-Reporting Financial Institutions or Excluded Accounts for ongoing monitoring.
Table 3 provides a summary of the specific activities undertaken, or that are planned to be undertaken, in relation to each of the key parts of the framework described above.
With respect to the Financial Account information, Costa Rica was not able to confirm that it collects and monitors information on the proportion of Financial Accounts that are reported that include information on the Tax Identification Numbers and/or dates of birth with respect to the individuals associated with them. These are key data points for exchange partners to effectively utilise the information and are important to developing an effective compliance strategy to ensure the AEOI Standard is being effectively implemented. Furthermore, Costa Rica was not able to confirm that it collects and monitors information on the number of undocumented accounts reported by its Reporting Financial Institutions. This information is crucial to implementing the requirement to follow up on undocumented accounts.
Ten exchange partners highlighted specific issues with respect to the information received, such as missing Tax Identification Numbers, dates of birth and addresses. Follow-up discussions confirmed that Costa Rica is aware of these issues and is currently seeking to improve the situation. More generally, many of the exchange partners that received a significant number of records from Costa Rica indicated that they achieved a success rate when matching the information received from Costa Rica with their taxpayer database that was broadly equivalent to, or better than, what they usually achieve.
Based on these findings it was concluded that Costa Rica is not meeting expectations in ensuring that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures, including by having in place the required administrative compliance framework and related procedures. More specifically, fundamental issues have been identified, including with respect to implementing an effective compliance and enforcement framework to address non-compliance by Reporting Financial Institutions. Costa Rica should therefore continue its implementation process accordingly, including by addressing the recommendations made.
Costa Rica should develop and implement an effective overarching compliance plan, informed by a risk assessment, to underpin its compliance activities. Reference is made to the lack of clarity over whether the tax authority currently has a sufficient legal basis to carry out all of the necessary activities.
Costa Rica should develop and implement effective procedures to identify its population of Financial Institutions, including those that do not register with the SIIF, to ensure that they correctly apply the definitions of Reporting Financial Institution and Non-Reporting Financial Institution and report information as required, especially including non-regulated entities that are Financial Institutions for the purposes of the AEOI Standard.
Costa Rica should develop and implement effective enforcement mechanisms to address non-compliance by Reporting Financial Institutions, including the application of dissuasive penalties and sanctions as appropriate, and routinely apply them where non-compliance is identified. Reference is made to the recommendations made when assessing Costa Rica’s legal frameworks implementing the AEOI Standard in relation to record keeping and penalties in particular.
Costa Rica should implement systems to collect and monitor information on the reporting of Tax Identification Numbers, dates of birth and undocumented accounts to inform its compliance strategy.
Costa Rica should develop and implement a clearly defined procedure to monitor and verify whether Reporting Financial Institutions are obtaining valid self-certifications as required, including dedicated communication activities, with a particular focus on self-certifications obtained after the opening of a Financial Account.
Costa Rica should put in place and implement a clearly defined policy to follow up with Reporting Financial Institutions that report undocumented accounts to ensure that the requirements are being complied with.
Costa Rica should put in place a clearly defined policy to ensure that, where circumvention of the AEOI Standard is identified, action is taken to address it.
Costa Rica should continue to address the issues raised by its exchange partners.
SR 1.6 Jurisdictions should collaborate on compliance and enforcement. This requires jurisdictions to:
use all appropriate measures available under the jurisdiction’s domestic law to address errors or non-compliance notified to the jurisdiction by an exchange partner; and
have in place effective procedures to notify an exchange partner of errors that may have led to incomplete or incorrect information reporting or non-compliance with the due diligence or reporting procedures by a Reporting Financial Institution in the jurisdiction of the exchange partner.
In order to collaborate on compliance and enforcement, it appears that Costa Rica implemented all of the requirements in relation to issues notified to them (i.e. under Section 4 of the MCAA or equivalent) in accordance with expectations. While no such notifications have yet been received, it appears that Costa Rica has the necessary systems and procedures to process them as required. It appears that Costa Rica will also notify its partners of errors or suspected non-compliance it identifies when utilising the information received.
Based on these findings it was concluded that Costa Rica is fully meeting expectations in relation to collaborating with its exchange partners to ensure that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures. Costa Rica is encouraged to continue its implementation process accordingly, to ensure its ongoing effectiveness.
CR2 Effectiveness in practice: Jurisdictions should exchange the information effectively in practice, in a timely manner, including by sorting, preparing, validating and transmitting it in accordance with the AEOI Standard.
Costa Rica’s implementation of the AEOI Standard is partially compliant with respect to exchanging the information effectively in practice and in a timely manner. More specifically, while Costa Rica is meeting expectations with respect to sorting, preparing and validating the information (SR 2.4), and providing corrections, amendments or additions to the information (SR 2.9), there are significant issues with respect to correctly transmitting the information and in a timely manner (SRs 2.5 – 2.8). Costa Rica should continue its implementation process to ensure its effectiveness, including by addressing the recommendations made.
SR 2.4 Jurisdictions should sort, prepare and validate the information in accordance with the CRS XML Schema and the associated requirements in the CRS XML Schema User Guide and the File Error and Correction-related validations in the Status Message User Guide (i.e. the 50000 and 80000 range).
Four exchange partners highlighted particular issues with respect to preparation and format of the information sent by Costa Rica (representing 6% of its partners). These generally related to formatting errors. More generally, two (or 3%) of Costa Rica’s exchange partners reported rejecting more than 50% of files received, due to the technical requirements not being met. This is broadly in line with the general experience of other jurisdictions. It was noted that Costa Rica is working to address these issues.
Based on these findings it was concluded that, overall, Costa Rica is meeting expectations in relation to sorting, preparing and validating the information. Costa Rica is encouraged to continue its implementation process accordingly, including in relation to the area highlighted.
Costa Rica should continue to work with its exchange partners to address the issues raised.
SR 2.5 Jurisdictions should agree and use, with each exchange partner, transmission methods that meet appropriate minimum standards to ensure the confidentiality and integrity of the data throughout the transmission, including its encryption to a minimum secure standard.
In order to put in place an agreed transmission method that meets appropriate minimum standards in confidentiality, integrity of the data and encryption for use with each of its exchange partners, Costa Rica linked to the CTS.
Based on these findings it was concluded that Costa Rica is fully meeting expectations in relation to agreeing and using appropriate transmission methods with each of its partners. Costa Rica is encouraged to continue to ensure the ongoing effectiveness of its implementation.
SR 2.6 Jurisdictions should carry out all exchanges annually within nine months of the end of the calendar year to which the information relates.
One exchange partner highlighted delays in the sending of information by Costa Rica. This partner stated that the corrected information has still not been received, including information that was due to be exchanged in prior years in some cases, Costa Rica is working to address the issue.
Based on these findings it was concluded that, overall, Costa Rica is meeting expectations in relation exchanging information in a timely manner. It was also noted that there is room for improvement with respect to sending corrected information to all exchange partners. Costa Rica is encouraged to continue to ensure the ongoing effectiveness of its implementation, including in relation to the area highlighted.
Costa Rica should ensure it sends information to all of its exchange partners in a timely manner.
SR 2.7 Jurisdictions should send the information in accordance with the agreed transmission methods and encryption standards.
Feedback from Costa Rica’s exchange partners did not raise any concerns with Costa Rica’s use of the agreed transmission methods and therefore with Costa Rica’s implementation of the requirement.
Based on these findings it was concluded that Costa Rica is fully meeting expectations in relation to sending the information in accordance with the agreed transmission methods and encryption standards. Costa Rica is encouraged to continue to ensure the ongoing effectiveness of its implementation.
SR 2.8 Jurisdictions should have the systems in place to receive information and, once it has been received, should send a status message to the sending jurisdictions in accordance with the CRS Status Message XML Schema and the related User Guide.
31 exchange partners highlighted delays in the sending of status messages by Costa Rica, representing 41% of its partners. This represents a very high proportion of partners and it has not improved over time. Cost Rica has still not yet sent some of the status messages due to be sent in 2021, as well as some that were due to be sent in prior years.
Based on these findings it was concluded that Costa Rica is not meeting expectations in relation to the receipt of the information. More specifically, fundamental issues have been identified, including with respect to sending status messages on receipt of files. Costa Rica is encouraged to continue to ensure the ongoing effectiveness of its implementation, including in relation to the area highlighted.
Costa Rica should ensure it sends Status Messages to all of its exchange partners in a timely manner.
SR 2.9 Jurisdictions should respond to a notification from an exchange partner as referred to in Section 4 of the Model CAA (which may include Status Messages) in accordance with the timelines set out in the Commentary to Section 4 of the Model CAA. In all other cases, jurisdictions should send corrected, amended or additional information received from a Reporting Financial Institution as soon as possible after it has been received.
Costa Rica appears ready to respond to notifications and to provide corrected, amended or additional information in a timely manner and no such concerns were raised by Costa Rica’s exchange partners and therefore with respect to Costa Rica’s implementation of these requirements.
Based on these findings it was concluded that Costa Rica appears to be fully meeting expectations in relation to responding to notifications from exchange partners and the sending of corrected, amended, or additional information. Costa Rica is encouraged to continue to ensure the ongoing effectiveness of its implementation.