Worldwide transfer pricing reference guide 2014

El Salvador (continued)
Transfer pricing penalties (continued)
Failure to comply with Section 135–f
In case the external tax auditor fails to comply with the new requirement under Section 135–f TC, a penalty of five minimum wages is
established for the tax auditor (approximately US$1,121), regardless of any other penalty that may be imposed by the local CPA’s Council
for not complying with the responsibilities of the profession.
Additionally, in case the tax auditor’s noncompliance is due to the fact that the taxpayer failed to provide the information and
documentation requested and required by the tax auditor, a penalty of 0.1% over taxpayer’s equity as reflected on taxpayer’s balance
sheet, minus surplus on the revaluation of assets, would be imposed on the taxpayer. Said penalty is at least four monthly minimum
wages (approximately US$897).
Failure to file related parties’ information return
In case of noncompliance with the filing obligation of the information return, Article 244 literal l) TC establishes a penalty of 0.5% over
taxpayer’s equity as reflected in the taxpayer’s balance sheet, minus surplus on the revaluation of assets, or not less than three monthly
minimum wages (approximately US$672.63).
When there is no balance sheet, or it is not possible to determine the taxpayer’s equity, a penalty of nine minimum wages would be
applicable (approximately US$2018).
General penalties and interest in case of tax adjustments
In case of adjustments for underpayments either on Income Tax or VAT, a general penalty of 25% of the unpaid tax applies, at
least US$568.
Furthermore, interest payments also apply. If the tax liability is paid within two months of the original payment term, the applicable
annual interest rate is 7.62%, but if the tax liability is paid after more than two months of the original payment term, the applicable
annual interest rate is 11.62%.
Penalty relief
According to Article 261 TC, if there is voluntary disclosure and payment, before any notice of an examination is received from tax
authorities, a 75% penalty reduction applies; if an examination is already ongoing, a 30% penalty reduction may still apply.
Documentation requirements
Currently, transfer pricing documentation is indirectly required in El Salvador through the GO, and it is advisable to document and
adequately support all transactions made with related parties for the external tax auditor to verify and reflect in the Tax Audit Report
that said transactions comply with transfer pricing regulations. Furthermore, the tax authorities have already started transfer pricing
audits, and in case a taxpayer does not maintain contemporaneous transfer pricing documentation, no penalties apply, but there is a
higher risk that tax authorities may attempt to recalculate and adjust according to their criteria.
In any case, taxpayers should have all supporting data and information that demonstrate that its intercompany transactions meet the
arm’s length principle test.
Among the documentation requirements by the GO, information about the taxpayer and its multinational group should be included, as
well as a complete functional analysis, criteria for selection of comparables and applicable methodology.
The GO recognizes the arm’s length standard, the comparability criteria, the transfer pricing methods, and implicitly the overall OECD
Guidelines, as a valid reference for establishing transfer prices.
Despite the fact that there is no explicit documentation obligation for taxpayers in the TC, external auditor has to issue an opinion on
transfer prices that practically requires taxpayers to prepare and maintain transfer pricing documentation by 31 May of each year, to
support related party transactions. This is reviewed in the Annual Tax Report (Dictamen Fiscal).
Documentation deadlines
It is recommended to prepare and maintain contemporaneous transfer pricing documentation within the first five months of the year
following the prior audit (period ending 31 May).
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