Legal Alert 006-EC: SRI modifies technical measures to prevent abuse and rules for the application of the transfer pricing regime.

Quito, July 2, 2020.

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Resolution NAC-DGERCGC20-00000046, published by the Internal Revenue Service on July 1, 2020, amended resolution NAC-DGERCGC16-00000532, previously amended with resolution NAC-DGERCGC16-0000017-617, the following aspects:

Previous resolutionCurrent resolution
Literal a of numeral 3 of article 2.The literal a is replaced.
a) Year of the data.- The profitability indicator of comparable operations, segments or companies must be calculated only with the financial information of the year under analysis. For this purpose, the latest information from independent third parties available as of April 10 of the year following the one analyzed must be used, provided that the accounting close of said information was after August 31 of the year analyzed. Only if there is no financial information that meets these conditions in any of the operations, segments or companies identified as comparable, the financial information of the year immediately prior to the one analyzed may be used.a) Year of the data.- The profitability indicator of comparable operations, segments or companies must be calculated with the financial information, at the end of the accounting year, of the year under analysis. For this purpose, the latest information from independent third parties, available prior to the income tax declaration for the year analyzed, must be used. In the absence of such financial information from one of the comparable operations, the information from the immediately preceding year (whose accounting close is after August 31 of said year) may be used; as long as it is shown that the relevant conditions in both periods did not change.
Previous resolutionCurrent resolution
Literal f of numeral 3 of article 2.The highlighted section is removed.
f) Selection of the analyzed part.- In order to support the selection of the analyzed part, when applying margin methods, the criteria of availability and quality of the information must be taken into account. For the development of the transfer pricing analysis, the local party must be selected. In the event that the local party does not meet the previously detailed criteria, the analysis may be carried out with the other party, in order to calculate the profitability indicator.f) Selection of the analyzed part.- In order to support the selection of the analyzed part, when applying margin methods, the criteria of availability and quality of the information must be taken into account.

The changes made in relation to resolution NAC-DGERCGC16-00000531 are detailed below:

Previous resolutionCurrent resolution
Numeral 2 of article 2.Numeral 2 is modified and numeral 3 is incorporated.
2. Said operations are carried out between the taxpayer of income tax and one or more of its related parties that are framed in at least one of the following conditions: a) Are residents or are established in the countries, jurisdictions or regimes indicated as tax havens or lower tax jurisdictions or are subject to preferential tax regimes, according to the resolution issued in this regard by the Internal Revenue Service. b) In the case of international intermediaries without tax residence in Ecuador who do not reside in the country or jurisdiction of final destination of the goods. For this purpose, intermediate ports or other spaces that are used for logistical or other purposes will not be considered as final destination of the goods, when the merchandise does not enter customs territory or is not nationalized.2. The operations indicated in paragraphs a) and b) of numeral 1 of this article are carried out between the taxpayer of income tax and one or more of its related parties that are framed in at least one of the following conditions: a) Are residents or are established in the countries, jurisdictions or regimes indicated as tax havens or lower tax jurisdictions or are subject to preferential tax regimes, according to the resolution issued in this regard by the Internal Revenue Service. b) In the case of international intermediaries without tax residence in Ecuador who do not reside in the country or jurisdiction of final destination of the goods. For this purpose, intermediate ports or other spaces that are used for logistical or other purposes will not be considered as final destination of the goods, when the merchandise does not enter customs territory or is not nationalized.
3. The operations indicated in literal c) of numeral 1 of this article are carried out between the taxable person of the income tax and one or more of its related parties.
Previous resolutionCurrent resolution
Numeral 3 of article 3.The number 3 is modified, the literal b is replaced, the literal c is incorporated.
3. In exports or any other type of sale of bananas, direct or indirect, under any modality: a) The comparable uncontrolled price method will be applied.
b) The comparable price will be equal to the indexed limit established in article 27 of the Internal Tax Regime Law.
3. In exports or any other type of alienation of bananas, direct or indirect, under any modality and other musaceae:
a) The uncontrolled comparable price method will be applied.
b) The comparable price of quality 22XU bananas that will apply for each month of the calendar year will be, according to the physical destination of the exports, that obtained in accordance with the following procedures, carried out on March 15 of the fiscal year following the one analyzed:

(I) Exports to the Russian Federation:

a. Enter the form displayed on the website http://stat.customs.ru, corresponding to the Data Analysis tab;
b. Select imports (Direction: Import);
c. Select the monthly fiscal year (Period: Month), select all the months of the analyzed year and use the button that moves the selection to the right panel;
d. Select the country (Country: Select from list), select EC-Ecuador and use the button that moves the selection to the right panel;
e. Select the 10-digit harmonized system level (HS level: 10-digit HS);
F. Use the selection option from a list (HS level: Select from list), select the fresh banana batch with the code 0803901000-BANANAS, FRESH (EXCL. PLANTAINS) and use the button that moves the selection to the right panel;
g. Request data for total federal districts (Federal district: Total), total subdivisions of federal districts within the Russian Federation (Subject of The Russian Federation in federal district: Total), net weight in kilograms (Net Weight: in kg) and the statistical cost in dollars (Statistical cost: in $).
h. Execute the query (Show results).The comparable price per kilogram of each calendar month will be equal to the result of dividing the sum of the dollar values ​​reported in each record (Value) of that month by the sum of the weight in kilograms reported in each of those records (Net Weight) .

(II) Exports to a member country of the European Union:

a. Enter the form EU trade since 1988 by CN8 (DS-016890) on the website: https://ec.europa.eu/eurostat/data/database; through the following folders: Data navigation tree / Database by themes / International trade / International trade in goods (ext_go) / International trade in goods – detailed data (ext_go_detail);
b. Select the following options: FLOW field: Imports; INDICATORS field: value (in euros) and quantity (in units of 100 kilograms); PARTNER field: Ecuador; PERIOD field: Imports in the respective annual fiscal year, selecting each month of the period; PRODUCT field: code entry 08039010 – BANANAS, FRESH (EXCL. PLANTAINS) (2012- 2500); and, in REPORTER: the data of the respective European country.

The comparable price per kilogram of each calendar month will be equal to the result of dividing the monthly value in dollars, after converting it from euros to the daily average of the official exchange rate of the Central Bank of Ecuador within said period, for the weight in kilograms reported in that month (after converting it from the registered unit of measure by multiplying each value by 100).

(III) Exports to all other countries: The comparable price that will apply to all exports, whose destination is different from the Russian Federation and member countries of the European Union, will be as follows:

a. Go to the website https://apps.fas.usda.gov/gats/AdvancedQuery.aspx;
b. In “Advanced Query” go to the vertical tab “Settings” and select as data source (Data Source): FAS US Trade, product group (Product Group): BICO (HS-10), type (Product Type): Imports – Consumption, type of value (Value Type): Unit Value and as a unit in quantities (Qty. Units): FAS Non Converted.
c. In the vertical tab “Dates” select as series (Series): Monthly, the months from January to December, of the analyzed year;
d. In the vertical tab “Partners”, select only Ecuador from the list;
e. In the vertical tab “Products”, field “Search”, select the search by code (Code), enter the tariff code 0803900035 and go to the “Go” button, then select only item 0803900035-BANANAS, FRESH;
F. Use the “Run Using Current Selections” button to obtain the unit value (in dollars) per metric ton.

The comparable price per kilogram of each calendar month will be equal to the result of dividing the unit value of that month, expressed in metric tons, by one thousand (1,000).

Until March 31 of the following fiscal year, the Internal Revenue Service will publish on its website the comparable prices indicated in this provision, for each month within the analyzed year. ”

c) For types of musaceae other than 22XU quality bananas, the comparable price will be the result of multiplying the comparable price set under the preceding paragraph by the current minimum support price of the specific type of musacea divided by the current minimum support price of bananas. quality 22XU
Previous resolutionCurrent resolution
Numeral 3 of article 4.The numeral 3 is replaced.
3. In exports or any other type of disposal of bananas, direct or indirect, under any modality, the year schedule of the date of shipment that appears in the bases of the National Customs Service as regularized or the yeartiming of the sale, as the case may be. For this purpose, if the sale indirectly corresponds to an export, it will be taken asyear of alienation to yearof the date of shipment of the respective export that appears in the bases of the National Customs Service as regularized. The current index limit will be taken for thatyear, according to resolution issued for this purpose by the Internal Revenue Service.3. In exports or any other type of sale of bananas and other musaceae, direct or indirect, under any modality, the month schedule of the date of shipment that appears in the bases of the National Customs Service as regularized or the monthtiming of the sale, as the case may be. For this purpose, if the sale indirectly corresponds to an export, it will be taken asmonth of alienation, to monthof the date of shipment of the respective export that appears in the bases of the National Customs Service as regularized. The current comparable prices will be taken for thatmonth, in accordance with this resolution.
Previous resolutionCurrent resolution
Article 6.The highlighted items are incorporated.
Other comparability adjustments.- In application of the established measures, additional comparability adjustments will be allowed to those provided in numeral 3 of article 4 and in article 5 of this Resolution only in exports or any other type of disposal of gold, silver, copper or other metallic mineral in any state, direct or indirect, under any modality, only with respect to the following items, as established for the calculation of royalties in article 2 of the Audit Instructions, Calculation of Royalties and Benefits of Metallic Mining Activity: a) International transportation expenses (GTI). b) The charges of the treatment and refining processes (CR). c) Transportation expenses (GT).Other comparability adjustments.- In application of the established measures, additional comparability adjustments will be allowed to those provided in numeral 3 of article 4 and in article 5 of this Resolution only in exports or any other type of disposal of gold, silver, copper or other metallic mineral in any state, direct or indirect, under any modality, only with respect to the following items, as established for the calculation of royalties in article 2 of the Audit Instructions, Calculation of Royalties and Benefits of Metallic Mining Activity:

a) International transportation expenses (GTI).
b) The charges of the treatment and refining processes (CR).
c) Transportation expenses (GT).

Likewise, in exports or any other type of disposal of bananas and other musaceae, once the values ​​applicable to each invoice have been calculated, multiplying the comparable price per kilogram, established in article 3 of this resolution, by the respective number of kilograms. of fruit shipped, the comparable value will be obtained per invoice. This value may be adjusted only by values ​​incurred for freight and insurance corresponding to said invoice in the case of comparable CIF prices, that is, of numerals (I) and (II) of literal b of numeral 3 of article 3 of this resolution, as long as the taxpayer documented proof that these values ​​were established in full competition.

The FOB export value that appears in the invoice will be subtracted from the respective comparable value, determining a difference per invoice. Subsequently, the differences of the same fiscal period that correspond to the same comparable price established by the three types of destination will be added, according to paragraph 3 of article 3 of this resolution, maintaining their positive or negative sign. It will be considered that there is a transfer price adjustment equivalent to said sum by destination, when it is greater than zero. Otherwise, there will be no place for such adjustment. Transfer pricing adjustments by destination will be added together to calculate the transfer pricing adjustment for the annual fiscal year.

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