Transfer Pricing Regulations in El Salvador were included in 2009, through the enactment of Legislative Decree No. 233, which amends and adds Articles 62-A, 124-A, 199-B, 199-C, 199-D of the Tax Code, which frame this regime.
Subsequently, in 2014, an amendment was made to Article 62-A of the Tax Code of El Salvador, incorporating for the first time the mention of the guidelines on this matter given by the Organization for Economic Cooperation and Development (OECD).
This is understood as the prices or values agreed for transactions among related parties or also called intercompany transactions.
This principle, also known as the “Arm’s Length” principle, is based on the principle that the prices or considerations agreed among related parties are at market value.
In the Transfer Pricing legislation in El Salvador this principle is quoted in Article 62-A of the Tax Code, which states that taxpayers who enter into transactions with related parties must determine the prices based on market prices, i.e. prices that would have been agreed upon by independent parties.
According to article 62- A, of the Tax Code, taxpayers shall be within the scope of the Transfer Pricing rules in El Salvador, if they are in any of the following situations:
Article 199-C, of the Tax Code of El Salvador, stipulates who shall be understood as related parties.
Said norm indicates the following:
According to the last paragraph of article 62-A of the Tax Code, countries or territories are considered as countries or territories of low or no taxation or preferential tax regimes when:
Additionally, the General Directorate of Internal Taxes (GDII) will publish a list indicating the countries that qualify as such.
Article 199-B of the Tax Code indicates what should be considered as market price, indicating rules in the case of local and international transactions.
Thus, in the case of local operations, the market price will be determined based on the price agreed upon by unrelated local businesses for the same goods or services.
In case of transfer of goods or services to foreign parties, the market price shall be determined by the price at which other unrelated parties have agreed for goods or services of the same kind, from El Salvador to the same place of destination.
The market price of imports shall be the price for such transactions in the country where it was acquired or loaned, adding the corresponding costs or expenses.
Likewise, it should be noted that Article 62-A after the amendment made in 2014, states that the methods contained in the Transfer Pricing guidelines established by the OECD may also be used to determine the market price.
Therefore, the following methods would also be applicable:
In order to be able to analyze whether two or more transactions are comparable, Article 199-D of the Tax Code has established the following comparability criteria to be taken into consideration:
Article 124-A of the Tax Code establishes that those taxpayers who perform transactions under the scope of these regulations must file a report of such operations or Technical Price Study to the Tax Administration.
In addition to performing these transactions with related parties or tax havens, in order to be obligated to file such declaration, the transactions indicated separately or jointly must be equal to or exceed five hundred seventy-one thousand four hundred twenty-nine dollars ($571,429.00).
This affidavit will be made through Form 982, with a filing deadline within the first three months of the fiscal year at the latest.
In order to file such declaration, the GDII makes available the general orientation guide.
Non-Compliance to file the aforementioned report or affidavit generates the infraction typified in article 241, paragraph b), of the Tax Code for late filing of the reports established by the Tax Administration.
This is penalized with a fine equivalent to 0.5% of the net worth of the taxpayer who commits the infraction.