El Salvador acknowledges the OECD Transfer Pricing Guidelines as a technical reference but not as a supplementary source of law interpretation. To facilitate compliance with Article 62-A of the tax code, El Salvador introduced a Transfer Pricing Orientation Guide (DG-001/2018) in March 2018. This guide, available only in Spanish, serves as a basis for transfer pricing determination.
El Salvador’s legal framework for transfer pricing was introduced through Decree 233 of December 29, 2009, within the Tax Code. Although not an OECD member, the Salvadoran tax authorities accept the OECD Transfer Pricing Guidelines as a specialized technical reference. A later reform in Decree 763 in July 2014 included references to the OECD Guidelines, but these were later struck down by higher courts.
El Salvador’s Transfer Pricing Regulation Law (Article 199-C) defines related parties based on several criteria. These include ownership of at least 25% of capital stock or voting rights, control by the same entities, being members or participants in each other, and various other affiliations, including relationships by blood or affinity.
El Salvador’s tax administration published a Transfer Pricing Guide in March 2018. This guide provides orientation for taxpayers, including the use of OECD techniques for transfer pricing analysis and comparability analysis. While the July 2014 reform incorporated OECD recommendations, these were later challenged in court.
The Ministry of Finance in El Salvador has published a General Guide (DG-02/2020) that includes lists of tax havens for tax purposes, subjecting transactions within these jurisdictions to a 25% WHT tax. Lists distinguish between low-tax jurisdictions and no-tax territories.
There are no specific considerations for APA in El Salvador.
El Salvador’s Tax Authority, the DGII, can perform transfer pricing audits from the financial year 2010 onwards. Transfer pricing audits are part of general tax audits. The DGII employs standard audit procedures, including on-site examinations and requests for additional information. Taxpayers have the burden of proof to demonstrate arm’s length transactions.
El Salvador hasn’t incorporated the documentation proposed by the OECD Guidelines into its transfer pricing legislation. The Master and local file method is commonly used but may lead to compliance issues if not followed meticulously. The definition of related parties in El Salvador is broader than in some other countries.
Identifying value drivers within industries helps determine common profitability levels.
Understanding the management structure, business strategy, and potential business restructurings or intangible transfers is essential for company analysis.
Functional analysis assesses activities, assets, and risks associated with intercompany transactions, following OECD Guidelines.
Taxpayers in El Salvador must prepare sufficient information to demonstrate arm’s length prices. This includes filing an Informative Return (Form 982) and a TP Study to establish transaction prices and reasonable documentation.
A benchmark study is necessary to assess the compliance of intra-company transactions with the arm’s length principle.
IC legal agreements have a lower rank in importance, following the concept of the ‘conduct of parties’ in the OECD 2017 Guidelines.
Taxpayers are required to disclose intra-company transactions in their financial statements.
The filing requirements are detailed in various formats for different aspects of transfer pricing documentation, with specific deadlines and language requirements.
Documentation must be in Spanish, but some information, like foreign comparables’ business descriptions, may be submitted in English, with possible requirements for translation.
The transfer pricing information return (Form 982) must be filed by March 31, with the DGII having access to it for edits.
Records must comply with the Taxation Code, with a status of limitations set at 10 years for certain tax-related information.
For non-compliance, the DGII has the authority to assess the value of transactions using market prices. Late or missing declarations may result in fines based on a percentage of assets or equity shown on the balance sheet, with minimum thresholds set.