The Executive Decree 973 issued by the president of Ecuador eliminates the application of the CUP method for import and export transactions with public and well-known international prices and the CUP Method for import and export transactions through an international intermediary.
Under the modifications, the 5 transfer pricing methods (i.e., CUP, Resale Price (RP), Cost Plus (C+), Profit Split (PS) and Transactional Net Margin Method (TNMM)) recognized in the OECD Transfer Pricing Guidelines (profit split and residual profit split are recognized as one method) must be used. Executive Decree 973 eliminates the compulsory hierarchy application between direct and indirect methods. The Executive Decree also allows the Ecuadorian IRS to issue technical guidance resolutions that taxpayers must follow.
For everything not covered by Ecuadorian IRS resolutions, Ecuadorian laws or international treaties signed by Ecuador, the most recent version of the OECD’s Transfer Pricing Guidelines on 1 January of the transaction’s fiscal year must be used as a technical reference.
Through resolution the Ecuadorian IRS, may establish the technical standards and methodology to prevent transfer pricing abuse, existence of reference prices, including method to apply the arm’s-length standard, identification of data sources for prices or margins, availability of information regarding the listing periods and acceptance or prohibition of intermediaries.
