Transfer pricing regulations in Ecuador are defined by Executive Decree No. 2430, effective from 2005. While Ecuador is not an OECD member, its tax authority, the Servicio de Rentas Internas (SRI), uses the OECD Transfer Pricing Guidelines as a reference. Resolution No. NAC-DGERCGC15-00000455 outlines content requirements for transfer pricing documentation.
Related parties are defined based on the OECD Model’s article 9(1). This includes parent-subsidiary, head office-branch, permanent establishment, and more. If transactions do not follow the arm’s length principle, the SRI may deem them related. Transactions with entities in tax havens are considered related parties. The burden of proof lies with taxpayers.
Ecuador hasn’t adopted BEPS Action 13, so there are no Master Files, Local Files, or CbC reports. Transfer pricing must be reported in Form 101 for annual income tax returns, accompanied by a tax compliance report signed by an independent CPA. For significant transactions exceeding $3 million, taxpayers must submit an Annex of Operations with Related Parties (AOPR). The taxpayer must provide this information within two months of the income tax return becoming enforceable.
SRI issues resolutions that define tax havens and lower-tax jurisdictions. Transactions with entities in these regions are treated as related parties for tax purposes.
Taxpayers can request the SRI to value activities with related parties based on the arm’s length principle. This inquiry applies to activities in the current and following fiscal years.
SRI has a dedicated transfer pricing team responsible for compliance. Transfer pricing issues are audited during tax audits, starting with desk reviews and followed by on-site inspections. The burden of proof typically lies with taxpayers.
The level of documentation depends on transaction amounts. Aggregate transactions above $15 million require a transfer pricing report. Transactions between $3 million and $15 million need an informative return (Annex). The documents should include identification of the taxpayer, information on foreign-related parties, transaction details, the transfer pricing method, comparables, and adjustments made. Ecuador relies on foreign comparables due to insufficient local financial data.
Value drivers for specific industries are considered to determine common profitability levels.
The management structure, organization chart, business description, and restructuring or intangibles transfers are assessed.
The assessment includes activities, assets, risks, and is consistent with OECD Guidelines.
Ecuador accepts multiple transfer pricing methods but favors the CUP method. The method should best fit the specific business and circumstances.
Ecuadorian companies use foreign comparables, and the tax authorities have published methods to determine comparable prices, especially for banana transactions.
IC legal agreements are less important since the focus is on the parties’ conduct.
Financial statements include balance sheets, profit and loss statements, and other relevant disclosures.
The submission process is determined by the ninth digit of the taxpayer’s identification number. There is a two-month deadline for transfer pricing documents, and the statute of limitations is three years.
Documentation should be in Spanish, although the use of English in some sections is unclear.
There’s no specific notification requirement for CbC reporting.
There are no specific rules for record-keeping. Tax legislation and other disciplines must be followed.
Ecuador imposes penalties of up to $15,000 for failing to submit transfer pricing reports or for errors and discrepancies. Late filing can result in penalties up to $333, based on the severity of the error.