Ecuador: SRI Updated the Technical Guidelines for Standardizing Transfer Pricing Analysis

28 noviembre, 2023

On November 22, 2023, the Internal Revenue Service (SRI) published an updated version of the “Technical Guidelines for the Standardization of Transfer Pricing Analysis.” This version establishes technical criteria for both the preparation of the annex and the drafting of the report under the transfer pricing regime.

Below, we highlight the most significant changes that must be taken into account for the analysis and preparation of comprehensive transfer pricing reports for the 2023 period.

Changes

Description
Contents of the Transfer Pricing Report Although the “Conclusions” section of the Transfer Pricing Report already required a table of contents, the signature of the legal representative or RUC holder, and, if applicable, the external advisor’s information, a new section has been added to the structure of the Transfer Pricing Report. This new section must include the information mentioned above and is structured as follows:

  1. Executive Summary:
  • Scope and Objective.
  • Contents.
  • Conclusions.
  • Table of contents prepared in accordance with the report’s established content, and including the signature of the responsible party: the legal representative in the case of legal entities or the RUC holder in the case of individuals.
Information on Intercompany Transactions In addition to the information requested regarding intercompany transactions in the prior fiscal year, the following information must be included:

  1. The accounting account in which the intercompany transaction was recorded.
  2. Indicate whether the intangible assets were originally developed in Ecuador and the date on which the asset was transferred to another country.

Furthermore, transactions involving the receipt and issuance of discounts and/or refunds (credit memos) and additional charges (debit memos) have been added to the list of transaction types.
Functional Analysis of the Group Additional information is required regarding the multinational group to which the taxpayer belongs. The additional information requested is as follows:

  1. Description of the multinational group’s business or businesses. Substantial risks assumed and significant assets used.
  2. Description of the main corporate restructuring operations, acquisitions, and divestitures during the fiscal year.
  3. Description of the group’s policy regarding intangibles.
  4. The Group’s financial and tax positions.
Functional Analysis of the Taxpayer The additional information requested is:

  1. Please provide details of the entities to which the company and the local management report hierarchically, and the countries in which those entities have their principal offices.
  2. Corporate restructurings or transfers of intangible assets carried out during the reported tax period or the immediately preceding one, as well as an explanation of the aspects of such transactions that affect the local company.
  3. A copy of existing unilateral and bilateral/multilateral advance pricing agreements, as well as other advance agreements to which the local tax jurisdiction is not a party and that relate to the related-party transactions described in this analysis.
  4. The functions performed, assets used, and risks assumed by the taxpayer and the related parties.
Comparables The additional information requested is:

  1. Only the financial information of comparable companies for the year under review should be considered. If financial information from more than one fiscal year is used, this must be objectively and thoroughly justified.
  2. Screenshots must be provided to demonstrate the public domain from which the qualitative and quantitative information on potential comparable companies was searched for and downloaded.
  3. The qualitative and quantitative filters used in the search for comparables must be shown.
Adjustments Made It is specified that non-deductible expenses will not be subject to accuracy adjustments in the taxpayer’s financial statements, since the analysis of the financial indicator must take into account all operating expenses, regardless of their tax treatment.

The interest rate to be used in the adjustments has been modified. If the cash cycle is positive, the lending rate available to each segment or company whose financial position is being adjusted must be used, in accordance with its geographic capital market. On the other hand, if the cash cycle is negative, the deposit interest rate available to that same segment or company must be used, based on its geographic capital market.
Additional Information If any information is not provided in accordance with the defined structure, the justification must be stated.

Furthermore, it is noted that the Comprehensive Transfer Pricing Report and the submitted appendices will be final and binding.

 

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