Worldwide transfer pricing reference guide 2014

Ecuador (continued)
Return disclosures/related party disclosures (continued)
Additionally, for some states in the United States, this regime applies to companies established as a Limited Liability Company (LLC),
whose owners are not US residents and do not have obligation to pay the federal income tax. Ecuadorian tax administration stressed its
interest in Delaware, Wyoming, Nevada and Florida.
Transfer pricing–specific returns
• Report of the external audit on financial statements shall include transfer pricing-specific comments that make it compulsory to
communicate outcome of the transfer pricing analysis before the issuance of the audit report
• Income tax return includes transfer pricing-specific fields
• Transfer pricing integral report, if applicable, should be filed during June
• Related parties transactions annex, if applicable, should be filed during June
Frequency of tax audit and transfer pricing scrutiny by the tax authority
In recent years, the number of cases involving in ongoing litigation and domestic appeals (preceding court action) has increased. Tax
havens are frequently involved in the disputes.
The likelihood of an annual tax audit in general is dependent on several factors, including revenues, industry, and compliance
precedents, but can be characterized as high.
If a taxpayer is selected for a general tax audit, the likelihood that transfer pricing will be reviewed as part of that audit is high.
The likelihood that, if transfer pricing is reviewed as part of the audit, the transfer pricing methodology will be challenged is also high. For
example, in audits where transfer pricing is a subject of the audit, the percentage of likelihood of reviews challenging the methodology
(or at least the comparables set) is over 75%.
On the other hand, there is a probability that for certain primary agricultural products, non-renewable natural resources or any kind of
commodity the tax authority may use secret comparables or databases in order to make comparisons using the CUP method.
Certain taxpayers continuously face a high risk of tax administration audits. These taxpayers are usually defined by total revenue, or by
certain business activities in relevant industries.
A transfer pricing audit is instigated by a central decision-making body. Various considerations are taken into account for determining
which taxpayers to audit, including (ranked in order of importance):
• The outcome of a risk assessment by the SRI
• The nature of related party transactions undertaken by the taxpayer
• Differences between data being reported to Customs Administration and to the Tax Administration
• Previous tax audits of the taxpayer
• The profitability of the local taxpayer
The sale of tangible goods (representing 80% of the current case load) and intra-group services (approximately 20% of the current
case load) are currently the focus of the Directorate of Taxes for transfer pricing review.
APA opportunity
Ecuador currently has no formal APA program. The local law outlines the possibility of APA-like procedures, and prescribes that
regulations will be issued by the tax administration on the application process of APA. However, relevant regulations have not yet been
issued. Therefore, no taxpayer has started consultation for an APA-like procedure.
Generally, the procedures require taxpayers to satisfy inquiries, relating to the previous two taxable years, from the tax administration.
After this taxpayer may propose, through consultation with the tax administration, applicable prices for the APA term. The APA term
includes the year preceding the APA application, the year of the APA application and the two tax years following the application. The SRI
has up to two years to resolve the proposal, but the actual time will depend on the caseload.
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