Global Tax Alert (News from Transfer Pricing and Americas Tax Center)| 27 February 2014

El Salvador introduces changes in transfer pricing information return

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Effective 5 February 2014, El Salvador modified its transfer pricing information return (F-982 V3). The return includes a new section in which the taxpayer must provide information relating to the transfer pricing documentation study.

Background

Section 124-A of the Salvadorian Tax Code (TC) establishes the obligation for taxpayers to file within the first three months that follows the fiscal year-end an information return on transactions conducted with related parties (F-982), when these transactions, individually or jointly considered, are equal or exceed the annual amount of US$571,429.

For this purpose and according to Section 199-C of the TC, parties are considered as related if they meet the following criteria:

  • One of the parties manages or controls the other party, or holds directly or indirectly, at least 25% of the shares or the voting rights of the other party.
  • Both parties are part of the same business group or same business decision entity.
  • A party domiciled in El Salvador is the local exclusive distributor or agent of a non-domiciled party, and vice versa.
  • A domiciled party that has a foreign supplier, and more than 50% of its purchases are originated from such supplier.

Individuals or legal entities incorporated or domiciled in tax haven jurisdictions are also considered as related parties.

Among the information required through Form F-982 is the following:

  • Name of the related party or of the tax haven domiciled party
  • Tax ID number if said party is domiciled in El Salvador
  • Country of jurisdiction of the related party
  • Annual amount of the transaction(s)
  • Comparability criteria applied
  • Type of element used for adjustments
  • Method applied

If a taxpayer fails to comply with the filing obligation of the F-982, Section 244 subsection l) of the TC imposes a penalty of 0.5% of the taxpayer’s equity as reflected on the taxpayer’s balance sheet, net of the surplus of assets (defined as the asset value in excess of the acquisition cost) but not be less than the equivalent of three months of minimum wages (approximately US$727).

When there is no balance sheet, or it is not possible to determine the taxpayer’s equity, a penalty equivalent to nine months of minimum wages would be applicable (approximately US$2,181).

Form F-982 V3

In the modified version, F-982 V3, taxpayers should describe the type of transfer pricing documentation prepared. In this regard, a taxpayer should indicate if such documentation is in a transfer pricing documentation study or if it has been prepared according to Administrative Guideline No. DG-001/2012 and if such documentation has been prepared by the taxpayer or by a third party. When the documentation is prepared by a third party, the name and tax ID of the third party should be provided.

For additional information with respect to this Alert, please contact the following:

Mancera, S.C., Mexico City
  • Jorge Castellón
    +52 55 5283 8671
    jorge.castellon@mx.ey.com
Ernst & Young, S.A., San José, Costa Rica
  • Rafael Sayagues
    +506 2208 9880
    rafael.sayagues@cr.ey.com
Ernst & Young Limited Corp., Panama City
  • Luis Eduardo Ocando
    +507 208 0144
    luis.ocando@pa.ey.com
  • María José Luna
    +507 208 0147
    maria.luna@pa.ey.com
Ernst & Young, S.A., San Salvador
  • Jesús Guzmán
    +503 2248 7036
    jesus.guzman@sv.ey.com

EYG no. CM4208