Corporate Tax 2010 - BMR Advisors

Chapter 15
Ecuador
Juan Carlos Bustamante
Bustamante & Bustamante
María Fernanda Saá-Jaramillo
1 General: Treaties
1.1 How many income tax treaties are currently in force in
Ecuador
Ecuador has in effect twelve bilateral income tax treaties with the
following countries: Belgium; Brazil; Canada; Chile; Spain;
France; Germany; Italy; Mexico; Romania; and Switzerland. An
income tax treaty specifically for air transportation matters is in
force with Argentina.
In addition, as a Member State of the Andean Community of
Nations (CAN), Ecuador complies with CAN DECISION 578,
which contains the Regime for the Avoidance of Double Taxation
and the Prevention of Fiscal Evasion among Member States.
Lastly, Ecuador has also signed the Multilateral Convention for the
Avoidance of Double Taxation of Copyright Royalties.
1.2 Do they generally follow the OECD or another model
The majority of bilateral treaties signed by Ecuador follow the
OECD model. This is because almost all of the countries with
which it has signed this kind of agreement have adopted the OECD
rules.
1.3 Do treaties have to be incorporated into domestic law
before they take effect
These treaties only require ratification from the President and take
effect in Ecuador once published in the Official Gazette; they do not
require approval from the National Assembly.
Furthermore, once approved by the Commission, Andean
Community Decisions are subject to a specific procedure defined
by CAN rules in order to become effective in each Member State.
1.4 Do they generally incorporate anti-treaty shopping rules (or
“limitation of benefits” articles)
Only articles 11 and 12 of the treaties signed with Chile and Mexico
incorporate anti-treaty shopping rules, aimed at avoiding any
attempt to benefit from the rules of the agreement with regard to
interest and royalties. The remaining treaties do not incorporate
anti-treaty shopping rules.
Treaty with Chile
Interest Article 11(7). The provisions of this article shall not apply
if the purpose or one of the main purposes of any person related to
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the creation or attribution of a loan with regard to which interest is
paid, is to benefit from this article by such creation or attribution.
Royalties Article 12(7). The provisions of this article shall not
apply if the purpose or one of the main purposes of any person
related to the creation or attribution of the right with regard to
which royalties are paid, is to benefit from this article by such
creation or attribution.
Treaty with Mexico
Interest Article 11(9). The provisions of this article shall not apply
if the loan for which interest is paid was made or assigned mainly
for the purpose of obtaining a benefit from this article.
Royalties Article 12(7). The provisions of this article shall not
apply if the right or property for which royalties are paid was made
or assigned mainly for the purpose of obtaining a benefit from this
article.
1.5 Are treaties overridden by any rules of domestic law
(whether existing when the treaty takes effect or
introduced subsequently)
Pursuant to the Constitution, the rules contained in international
treaties and agreements, once published in the Official Gazette,
become part of Ecuadorian legislation and prevail over internal
laws and other lesser ranking rules and, therefore, cannot be
overridden by the rules of domestic law.
2 Transaction Taxes
2.1 Are there any documentary taxes in Ecuador
No, there are no documentary taxes.
2.2 Do you have Value Added Tax (or a similar tax) If so, at
what rate or rates
Yes. Ecuador has a sole rate for Value Added Tax (VAT) which is
12%.
2.3 Is VAT (or any similar tax) charged on all transactions or
are there any relevant exclusions
As a general rule, VAT applies to all imports and transfers of
tangible movable goods produced in the country, as well as to all
services rendered locally.
The following transfers, however, are not subject to VAT: (i)
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