Transfer Pricing in Ecuador

According to what the LORTI has established, related parties are understood as natural persons or companies, whether domiciled or not in Ecuador, which:

• One of them controls directly or indirectly through the management, administration or capital of others;
• Or in which a third party participates directly or indirectly in the management, administration or capital of these.

Article 4 of the LORTI Regulations establishes the criteria linkage among related parties when they are based on capital or volume of transactions.

The aforementioned article sets non-exhaustive situations in which the aforementioned types of relationship are established, such as the following:

• When a natural person or company directly or indirectly owns 25% or more of the capital stock or equity in other company.
• Companies having partners or shareholders in common and these participate directly or indirectly in the proportion indicated above, even when this corresponds to their spouses or relatives up to the fourth degree of consanguinity or second degree of affinity. The relationship will also be constituted when these maintain commercial transactions, provide services or are dependent.
• When a natural person or company directly or indirectly owns 25% or more of the capital stock or equity in two or more companies.
• When a natural person or company makes 50% or more of its sales or purchases of goods or services with a natural person or company. In this case, the Tax Administration must inform the taxable person.

Additionally, the LORTI also considers as related parties companies domiciled, incorporated or located in Tax Havens or in a tax jurisdiction with lower or no taxation.