ECUADOR Law and Practice Contributed by: Diego Almeida-Guzmán, Andrés Álvarez-Toapanta, Guillermo García-Mendoza and Ignacio Jijón-Chiriboga, Almeida Guzmán & Asociados
Whenever the provider of a digital service is not reg - istered before the Ecuadorian IRS, the consumer is obliged to act as tax collector. However, if the pay - ment is made through an intermediary (credit card issuer or bank), the intermediary will be liable for col - lecting the VAT. 9.2 Government Policy and Objectives Approach The Ecuadorian government is committed to com - plying with OECD standards and participating in the organisation’s committees. To that end, the Ecuado - rian government ratified the Multilateral Convention on Mutual Administrative Assistance in Tax Matters. Nevertheless, there are no indications that the Ecua - dorian government will sign the Multilateral Conven - tion to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting. 9.3 International Tax The authors consider that, to date, international tax does not have a high public profile in Ecuador. How - ever, it is evident that any new development on the matter, particularly regarding BEPS, will in a relatively short period be adopted by local authorities, as noted in relation to VAT applicable to digital services, transfer pricing information requirements and reports regard - ing beneficial owners. Regarding Pillar Two of BEPS (substance), as stated in previous sections, the deductibility of expenses is allowed whenever the transaction reflects economic substance. The economic substance in transactions has been an important principle used by the Ecuado - rian tax authority in its audits. Regarding Pillar One of BEPS (coherence), the Ecua - dorian tax system lacks a strong technical back - ground on international taxation. The Ecuadorian regime requires a comprehensive reform to comply with Pillar One. 9.4 Competitive Tax Policy Objectives The Ecuadorian tax system is generally fair and bal - anced as regards competition between foreign and local entities.
Nevertheless, the existence of indiscriminate tax ben - efits creates a false sense of competitiveness. Over the past decade, Ecuador has implemented several tax benefits that have not incentivised new national and international investment. This has also been to the detriment of good tax practice by going against the principles of generality and equality that should be present in any tax regime. Considering the particularities of the Ecuadorian tax regime regarding the characteristics of the country’s productive sectors, there does not appear to be any pressure for BEPS to be applicable in Ecuador. The country’s exposure to the international community is marginal. Therefore, it is unlikely that there will be pressure from the international or local community to implement tax amendments to fully comply with BEPS, notwithstanding what is stated in previous sections. 9.5 The Competitive Tax System The main issue with the tax system in Ecuador is enforceability, as well as generalised mistrust of tax - payers by the tax authority. In that sense, the tax authority has implemented initiatives for co-operative tax assessment/audit with key taxpayers that have voluntarily participated in such initiatives. Direct state aid in recent years has mostly been in the form of subsidies granted to the general public applied to the prices of hydrocarbons and fuels. However, these subsidies have now been reduced, although the government has decided not to remove them entirely due to concerns over potential civil unrest. 9.6 Hybrid Instruments and BEPS Implementation As previously stated, the Ecuadorian tax system lacks a strong technical background on international taxa - tion. As such, the implementation of new mechanisms, such as actions to deal with hybrid instruments, is far from becoming a reality. Likewise, there do not appear to be any pieces of legislation or proposals for dealing with hybrid instruments in Ecuador. 9.7 Interest Deductibility and Territorial Tax Regime Overall, the current tax regime applicable to interest does not provide for restrictions tailored to territorial
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