Ecuador’s tax landscape witnesses a significant shift as the Tax Authority rolls out the updated Technical Sheet (version 8) for the Standardization of Transfer Pricing Analysis, effective from fiscal year 2023. This latest iteration introduces pivotal changes, impacting filing protocols, the content within the Comprehensive Transfer Pricing Report (Local File), adjustments in working capital formulas, and the selection criteria for comparable companies within Ecuador’s jurisdiction.
Key Modifications in Version 8 of the Technical Sheet:
Comprehensive Transfer Pricing Report (Local File):
The revised guidelines mandate the submission of the Comprehensive Transfer Pricing Report solely in PDF format via designated channels. The comprehensive upload of all accompanying documents and Annexes is now an essential verification step.
Additionally, the report’s printed index must bear the electronic signature of the legal representative or the Tax Identification holder in the case of natural persons.
A notable inclusion requires the incorporation of information pertaining to profit/loss and/or balance sheet accounts linked with transactions involving related parties into the transaction summary table.
However, challenges may arise as the Tax Regulation and the current version of DIMM1 Annexes of Transactions with Related Parties do not encompass certain transaction types like Other Assets and Other Liabilities, potentially impeding accurate reporting by taxpayers.
A novel obligation necessitates the disclosure of intangible development within Ecuador that has been transferred overseas and the date of transfer.
To enhance transparency, the report integrates a detailed table outlining various facets of agreements supporting intangible exploitation operations, encompassing aspects like licensor and licensee information, contract type, territory, rights associated with the intangible, functional and risk aspects, among others.
The Tax Authority mandates comprehensive information within the Local File concerning the Multinational Group, the taxpayer, and related parties involved in transactions. This aligns with international standards set by the Base Erosion and Profit Shifting (BEPS) initiatives under OECD’s Action 13.
Precise documentation regarding local company functions, assets, risks, corporate restructuring, and other fiscal period transactions is now obligatory. Furthermore, details of existing unilateral and bilateral/multilateral advanced price agreements of the Multinational Group need to be furnished.
Selecting Profit-level Indicators and Comparable Companies:
There are new requirements for selecting profit-level indicators using third-party information at fiscal year-end, limiting the use of quarterly reports like 10-Q.
Financial data post-June 30th is preferred, and only Annual Reports’ financial information is acceptable for Transfer Pricing analysis. Notably, audited or unaudited financials from companies in jurisdictions with limited information might face acceptance challenges.
Information on Selected Comparables:
Taxpayers are mandated to submit descriptions of business activities and characteristics of selected comparable companies, along with their functions, assets, risks, and sources of information.
The finality of submitted Local Files and annexes during Tax Administration’s determination processes restricts any subsequent document submissions by taxpayers.
Ecuador’s updated Technical Sheet for Transfer Pricing Analysis echoes a global paradigm shift in tax reporting standards. These changes emphasize transparency, demanding careful attention from both businesses and tax professionals to ensure compliance and precision in their practices.
Adapting to these new requirements can be intricate, yet they signal a pivotal moment for the evolution of tax technology and transfer pricing. At TPA Global, we’re committed to supporting businesses and tax professionals throughout this transition. We aim to provide tailored assistance in order to navigate these updated standards, ensuring compliance and accuracy in tax strategies and transfer pricing processes.
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