ECUADOR Law and Practice Contributed by: Diego Almeida-Guzmán, Andrés Álvarez-Toapanta, Guillermo García-Mendoza and Ignacio Jijón-Chiriboga, Almeida Guzmán & Asociados
tax regimes (special economic development zones). Ecuador is a country that requires strong inflows of capital, including capital related to foreign loans. In this sense, imposing additional restrictions on the deductibility of interest would be inconvenient. Nevertheless, the Ecuadorian tax regime provides for free trade zones that benefit from incentives including an ISD tax exemption on loans paid to foreign entities by the operators of such zones (see 2.3 Special Incentives ). 9.8 Controlled Foreign Corporation Reform See 6.5 Controlled Foreign Corporation-Type Rules . 9.9 Anti-Avoidance Rules The double tax convention limitations should not have any impact on either inbound or outbound investors. It is important to note that Ecuador has complementary rules in place to avoid evasion and abuse of law. 9.10 Transfer Pricing and IP Taxation The application of transfer pricing in Ecuador is still lim - ited, and for now mainly applies to export activities. In this sense, before the country implements any changes to transfer pricing, Ecuador needs to further develop its current system. The taxation of profits from intellectual property is not a particular source of controversy or difficulty under Ecuador’s tax regime. Profits related to intellectual property are generally taxed as royalties. 9.11 Country-by-Country Reporting and Transparency Provisions Should the proposal for transparency and country- by-country reporting be formally implemented, it is unlikely to have any relevance for Ecuadorian taxation purposes. Nevertheless, recent reforms made by the tax authority require ample information of the multi - national group of the local reporting taxpayer (Master File). In practice, the Ecuadorian tax authority requires a country-by-country report, similar to the one that is filed by the OECD members. 9.12 Digital Economy Businesses Ecuador has implemented certain legal provisions to tax transactions effected by digital businesses oper - ating largely outside Ecuadorian territory. Specifically, the Ecuadorian tax system has implemented a registry for foreign digital service providers. Likewise, credit
card issuers and banks are responsible for collecting the VAT charged on digital services provided by enti - ties that are not registered with the Ecuadorian IRS. Similarly, the income generated by digital platforms for sports predictions has been targeted in recent reforms by the Ecuadorian tax regime. 9.13 Approach to Digital Services Taxation Ecuador has taken a few steps in relation to digital taxation; specifically, regarding Action 1 under the International VAT/GST Guidelines of BEPS. In this regard, Ecuador has issued legal provisions to col - lect the VAT charged on digital services provided by foreign entities (see 9.1 Adoption of BEPD Recom- mendations and 9.12 Digital Economy Businesses ). The income perceived by operators of sports-predic - tion digital platforms is subject to a special income tax. The latter is also applicable to tax residents in Ecuador that engaged in sports-prediction operations and perceived profits. The income tax rate is set at 15% of the taxable base. Non-resident operators must comply with various for - mal tax obligations. This involves registering before the Ecuadorian tax authority and appointing a repre - sentative in the country, as well as fulfilling formal obli - gations such as filing returns. If the foreign operator does not comply with such formal obligations, correc - tive measures may be applied, such as blocking the relevant IP address. Additionally, operators must pay a yearly contribution to legally operate digital platforms for Ecuadorian users. 9.14 Offshore IP Provisions Ecuador has not introduced any other provisions deal - ing with the taxation of offshore intellectual property deployed within the country. However, regarding the deductibility of royalties and technical service fees, see 4.1 Application of Withholding Taxes . Neverthe - less, intellectual property licensing agreements must be registered before the Ecuadorian intellectual prop - erty authority; otherwise, the relevant royalties will not be income tax deductible.
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