The audit of Transfer Pricing continues to gain importance in Latin America, and Ecuador is no exception. In recent years, the Internal Revenue Service (SRI) has strengthened control mechanisms over transactions between related parties, establishing specific reporting and documentation requirements that allow for verification of compliance with the arm’s length principle. In this context, companies engaged in intra-group transactions must pay special attention to the reporting requirements established by Ecuadorian regulations to avoid tax liabilities and ensure proper tax risk management.
Currently, companies conducting transactions with foreign and/or local related parties under certain conditions must carefully analyze whether they are required to file the Related Party Transactions Annex (AOPR) and the Comprehensive Transfer Pricing Report (IIPT), two fundamental tools for tax risk management and tax transparency.
The Role of Transfer Pricing in Ecuador
Transfer Pricing refers to the values agreed upon in transactions between related companies, including the transfer of goods, provision of services, financing, licensing of intangible assets, and other intra-group transactions.
Ecuadorian law requires that these transactions be conducted under the arm’s length principle, that is, under conditions equivalent to those that independent companies would have agreed upon in comparable circumstances. This criterion forms the basis of Ecuador’s Transfer Pricing regime and aims to prevent distortions that could affect the correct determination of the tax base.
Who Must File the Related-Party Transactions Annex?
In accordance with current SRI regulations, taxpayers subject to income tax who have conducted transactions with foreign and/or domestic related parties under certain conditions for a cumulative amount exceeding USD 3 million within a single fiscal year must file the Related-Party Transactions Annex (AOPR).
This requirement allows the Tax Administration to identify and monitor transactions between related entities, both domestic and foreign.
When is the Comprehensive Transfer Pricing Report mandatory?
In addition to the Annex, taxpayers whose transactions with related parties exceed USD 10 million during the same fiscal year must file the Comprehensive Transfer Pricing Report.
This report constitutes a detailed technical analysis that assesses the reasonableness of related-party transactions through the application of internationally recognized methodologies and comparability studies that demonstrate compliance with the arm’s length principle.
It is important to note that the USD 10 million threshold applies to fiscal years 2023 and beyond, as a result of regulatory changes implemented by the SRI. For prior fiscal years, the established limit was USD 15 million.
Beyond Formal Compliance
The filing of these obligations should not be viewed solely as an administrative requirement. Both the AOPR and the IIPT are part of an increasingly sophisticated audit strategy by tax authorities in the region.
The reported information allows the SRI to identify tax risks, detect inconsistencies, and select taxpayers for review or audit processes. Consequently, companies must ensure that their Transfer Pricing policies are adequately documented and supported by sound economic analysis.
Likewise, it is essential to maintain consistency between financial statements, tax returns, intra-group contracts, and the supporting documentation used to justify the terms of related-party transactions.
The Regional Trend Toward Greater Transparency
The evolution of Ecuador’s tax regime reflects a trend observed throughout Latin America. Tax authorities have strengthened their technical capabilities and adopted international standards inspired by the OECD Transfer Pricing Guidelines and the recommendations of the BEPS (Base Erosion and Profit Shifting) Project.
As a result, business groups face greater documentation requirements and a more rigorous audit environment, where the proper management of Transfer Pricing has become a key element of corporate tax strategy. Companies that conduct transactions with foreign and/or local related parties under certain conditions in Ecuador must promptly assess their reporting and documentation obligations to avoid tax contingencies and potential penalties.
The early preparation of the Related-Party Transactions Annex and the Comprehensive Transfer Pricing Report not only ensures compliance with current regulations but also strengthens the organization’s tax position in the face of potential audits by the Tax Authority.
At TPC Group, we have a team specialized in Transfer Pricing and International Taxation, providing comprehensive advisory services for tax compliance, the preparation of technical studies, and tax risk management in Ecuador and throughout Latin America.
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