Worldwide transfer pricing reference guide 2014

Ecuador
Taxing authority and tax law
Tax authority: Internal Revenue Service (Servicio de Rentas Internas or SRI)
Tax law: Internal Tax Regime Organic Law (Ley Orgánica de Régimen Tributario Interno or LORTI) and its regulations
Relevant regulations and rulings
• Title 1, Chapter I, 1st unnumbered after Art. 4, LORTI — definition of related parties
• Title 1, Chapter IV, § 2 LORTI — establishment of the transfer pricing regime
In the same section mentioned above, the fifth unnumbered Article after Article 15, establishes an exception to the transfer pricing
regime application when a taxpayer complies with all of the following conditions concomitantly:
• Has tax payable greater than the 3% of their taxable income
• Does not perform transactions with tax havens
• Does not have government contracts related to the exploration and exploitation of non-renewable resources
Article 87 of the Tax Regulation (Reglamento para la Aplicación del Régimen Tributarios Interno) establishes the median calculation and
arm’s length standard.
Article 90 LORTI establishes the utilization of secret comparables for the review of the application of the arm’s length principle.
Article 85 of the Tax Regulation (Reglamento a la Ley Orgánica de Régimen Tributario Interno) about International Intermediary: in case
of exports and imports with related parties which work with primary agricultural product, non-renewable natural resources or any kind
of commodity whose price is known in transparent markets, where an international intermediary is involved and is not the intended
recipient of the goods, the local tax authority could consider this kind of intermediary as invalid (not substantial, hence, not deserving
any margin) for the use of the CUP method.
In addition, the Tax Regulation establishes the concept of sub-capitalization, which requires the amount of the external debt to be not
greater than 300% of the equity, if interest payments abroad are to be considered as deductible expenses.
SRI Resolution NAC–DGER2008–0464 establishes the transfer pricing exhibit and transfer pricing integral report content requirements,
where documentation is required for domestic and cross border transactions with independence of the tax regime of the parties.
Resolution NAC DGERCGC 13–00011, established changes in the minimum values and types of transactions that is necessary for
the presentation of the transfer pricing annex and transfer pricing report These amendments will apply to all the transfer pricing
documentation since the year 2012.
The principal amendments are as follows:
Taxpayers are required to file the transfer pricing annex:
• If domestic and cross border related party transactions total amount for the fiscal year under documentation exceed US$3,000,000
Taxpayers are required to file the transfer pricing report:
• If domestic and cross border related party transactions total amount for the fiscal year under documentation exceed US$6,000,000
OECD Guidelines treatment
The SRI considers the 1995 edition of the OECD Guidelines to be a technical reference for analyzing intercompany transactions.
However, LORTI holds supremacy over the OECD Guidelines.
Ecuador follows a hierarchy of transfer pricing methods. Local regulations establish that only the six methods established in the OECD
Guidelines are applicable. The CPM and Profit Split method are considered the last resort methods by the SRI.
Worldwide transfer pricing reference guide
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