Worldwide transfer pricing reference guide 2014

El Salvador
Taxing authority and tax law
Taxing authorities: Dirección General de los Impuestos Internos (DGII) and Ministerio de Hacienda (MH)
Tax law: Salvadorian Tax Code (TC) Sections 62–A, 124–A, 135–f), 147–e), 199–A, 199–B, 199–C, and 199–D
Relevant regulations and rulings
Effective as of 29 December 2009, the Salvadorian Congress passed a tax reform modifying the TC through Decree No. 233.
Among the most relevant changes were the introduction of valuation at fair market value principle, definition of related party, and
comparability concept.
Disclosure in the tax report
Under the rules of the TC, when a taxpayer has assets with a value exceeding US$1,142,857 or sales higher than US$571,429 during
the previous fiscal year, it must appoint an external tax auditor (certified public accountant) to perform a statutory tax audit and file the
resulting tax audit report within the first five months following the tax year that was audited (deadline of 31 May or when applicable, the
next business day).
As part of the tax reform, subsection (f) was added to Section 135 TC to include an obligation for an external tax auditor to include a
note in its report regarding transactions conducted by the taxpayer with its related parties or entities domiciled in tax haven jurisdictions,
indicating if the taxpayer complies with the transfer pricing legislation (mainly the arm’s length principle).
As of March 2012,the MH on its website published an Administrative Guideline or Guía de Orientación (GO) No. 001/2012 intended to
provide general guidance to taxpayers on the tax treatment of related party transactions or transactions with entities domiciled in tax
haven jurisdictions.
The GO is intended to supplement the TC by defining guidelines for both taxpayers and tax auditors. For taxpayers, it provides guidance
on topics such as the identification of related parties, transfer pricing methodology and documentation requirements, as well as on the
application of withholding tax and non-deductibility of costs and expenses in related party transactions and transactions with tax havens.
For tax auditors, it provides guidance on disclosure in the tax report.
OECD Guidelines treatment
El Salvador is not a member of the OECD; however, via the GO, it refers to the OECD Guidelines and the definitions contained therein.
It is more likely than not that tax authorities accept transfer pricing analyses made in accordance with OECD Guidelines.
Priorities/pricing methods
The law does not regulate specific transfer pricing methods, but it establishes that tax authorities are empowered to apply the CUP
method when adjusting prices. Therefore, in practice, tax authorities have a preference for this method. Nonetheless, with the
introduction of the GO, the following methods are acceptable: CUP, Resale Price, Cost Plus, TNMM and Profit Split.
Transfer pricing penalties
Failure to maintain transfer pricing documentation
A penalty of 2% over taxpayer’s equity as reflected in the taxpayer’s balance sheet, minus surplus on the revaluation of assets,
is imposed when the taxpayer does not have supporting documentation or fails to comply with the obligation to maintain all
documentation, for transactions conducted with related parties, and with individuals or legal entities domiciled, incorporated or resident
in tax haven jurisdictions for 10 years.
Said penalty cannot be less than nine minimum wages 1 (approximately US$2,018).
1 The minimum wage is established by the Salvadorian Labor Ministry. As of 16 May 2011 and according to Executive Decree No 56 published in the Official Gazette No 391, the
monthly commercial minimum wage to which the TC refers, was established as US$224.21
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