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The Organic Law of Communication (“LOC”) determines, in article 98, the rules of nationality for the production of advertisement to be disseminated through social communication media (“Rules of Nationality of Production”) which establish that advertisements transmitted through the social communication media:
Art. 98. – Production of National Advertising. – Advertising that is disseminated in Ecuadorian territory through the communication media must be produced in Ecuadorian territory by Ecuadorian natural persons or foreigners residing in Ecuador or produced abroad by Ecuadorian persons residing abroad or foreign legal entities whose ownership of the majority of the shares in said entity is held by Ecuadorian persons and whose payroll for its realization and production is made up of at least 80% of people of Ecuadorian nationality.
This payroll percentage will include the hiring of professional services.
The import of advertising pieces produced outside the country by foreign companies is prohibited, with the exception set forth in the first paragraph regarding foreign legal entities with a majority of the share package held by Ecuadorian persons.
For the purposes of this law, advertising production is understood to be television and film commercials, radio sports, photographs for static advertising, or any other audiovisual piece used for advertising purposes.
The advertising of international campaigns designed to promote respect and the exercise of human rights, peace, solidarity and human development is exempt from what is established in this article.
Social communication media are defined in the LOC as: “… public and private entities and community organizations, as well as the concessionaires of radio and television frequencies, who provide the public service of mass communication that utilize print media o radio services, television and audio and video subscription services, whose contents can be generated or replicated by the media through the internet.”
The Regulation for the Application of the LOC, among other aspects, regulated the application of the Rules of Nationality of Production for advertisement through alternative channels other than social communication media; and clarified on its application for each type of advertising piece in the case of advertisements aimed at promoting tourist destinations or events abroad or those in which the images of famous people or animated fictional characters that are the image of the brands are used. The derogatory provided by Executive Decree 32 has the following relevant implications in terms of advertising:
– Advertisement to be disseminated through alternative media such as (i) billboards or photographs located in public space in commercial premises; (ii) catalogs; (iii) flyers is no longer subject to the Rules of Nationality of Production.
– Importing printed advertising materials such as diaries, notebooks and catalogs is allowed.
– There is no prohibition for advertisement photography to be disseminated by social communication media to be taken by a foreign photographer – that is not an Ecuadorian resident – as long as the Rules of Nationality of Production regarding the property of the producer is complied with and the production team is at least made up of 80% Ecuadorians.
– There are no guidelines that regulate the application of Rules of Nationality of Production in the case of advertising intended to promote touristic destinations or events located outside Ecuador, the use of images of famous people or animated characters that are the international image of a brand (the derogated Regulations for the application of the LOC allowed the use of these videos/images for up to 20% of the duration of the video or the composition of the piece).
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This Executive Decree establishes the standards to which the public servants of the Executive Branch to achieve a transparent and efficient public administration at the service of the citizens.
Below the main standards of the Executive Decree No. 4:
Nepotism: Relatives of the president, vice president, ministers and vice ministers of State, secretaries and undersecretaries of State, managers, and directors of public companies, up to the fourth degree of consanguinity and second degree of affinity or those with whom there is a relationship by common-law relationships, cannot be hired or appointed within the same administrative entities. The relatives of the aforementioned officials, within the stated degrees, cannot contract directly nor indirectly with public entities of the Executive Branch.
The use of public assets and resources shall be exclusively for the performance of specific duties
Conflicts of interest shall be declared, and the public servant is prevented form intervening in matters in which such conflicts exist.
Transparency, which includes:
– The promotion of good corporate practices.
– The entities that are part of the Executive Branch will promote the contracting of national and foreign companies that have adopted codes of good corporate practices, including commitments against corruption, environmental protection, promotion of human rights, labor safety and non-discrimination.
– Companies that have their corporate headquarters in countries where executives of such companies are not sanctioned for corrupt practices incurred abroad will not be contracted. It is prohibited to contract with individuals or legal entities that have outstanding assessments from the Comptroller General’s Office.
– It is prohibited to receive gifts, presents, or any other type of benefit, gift or reward, invitations, payments in restaurants, from national or foreign executives or private persons who do or intend to do business or have any other type of commercial relationship with the State.
– When a public official attends an event due to his/her functions, and the protocol so dictates he/she may give and receive gifts that its value does not exceed USD$200.
Equal opportunity and fair treatment by Executive Branch officials who will not discriminate any person based on race, ethnicity, gender, marital status, nationality, age, political affiliation, religion or sexual orientation. Public servants shall be kind, friendly and polite and shall not get involved in situations, activities or interests incompatible with their functions, refraining from any conduct that may affect their independence of judgement.
The Secretary of State for Public Administration and Cabinet will oversee supervision and compliance.
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This is the first data protection law in Ecuador, which represents a radical change in the processing and security mechanisms of personal data.
The Data Protection Law has 77 articles distributed in 12 chapters. The main elements and obligations are the following:
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1. Haiti
2. Republic of the Congo
3. Mali
4. Ivory Coast
5. Myanmar
Nationals of these countries that carry diplomatic, official or special passports, subject to reciprocal visa exemptions under multilateral and bilateral agreements signed by the Republic of Ecuador, are exempted from this provision.
The above mentioned are added to the nationals of the following countries who also require a visa to enter Ecuador:
Afghanistan, Angola, Bangladesh, Cameroon, North Korea, Cuba, Egypt, Eritrea, Ethiopia, Filipinas, Gambia, Ghana, Guinea, India, Irak, Irán, Kenia, Libya, Nepal, Nigeria, Pakistan, Democratic Republic of Congo, Senegal, Syria, Sri Lanka, Somalia, Venezuela, Vietnam and Yemen.y.
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When the filing date is a national or local holiday, the annex may be filed on the following business day, unless it falls on the following month, in which case this rule will not apply, and the annex must be filed in the previous business day.
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On those cases, that living wage compensation is applicable, employer shall pay it to employees no later than March 31st, 2021.
For living wage payment, “profit” shall be understood as the value declared by the employer as accounting profit deducting: (i) employees profit sharing, (ii) tax or advance payment fixed for the fiscal year declared, and (iii) statutory reserve.
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The following is a summary of the changes introduced in each Regulation:
Regulation NAC-DGERCGC14-00001048
Information to be included of the parties and the transactions subject to consultation:
a. Names and surnames, company name, tax identification number, country of tax residence and income tax rate of the taxpayer and the parties with whom the operations covered by the consultation are carried out,
b. Detailed description of the operations, including among other elements, their nature, characteristics, amount in US dollars of the last three fiscal years, and the effect on the taxpayer’s income,
c. If the transaction is a service, documentation must be submitted to identify its invoicing, periodicity, and form of payment. In the case of royalties, in addition to the above, the intangible asset, its owner, administrator (if applicable), the method of valuation of the intangible asset and its calculation must be fully identified,
d. Comparability analysis according to the terms described in the tax legislation, including the following elements: i) characteristics of the operations; ii) analysis of the functions or activities performed, including the assets used and risks assumed; iii) contractual terms; iv) economic or market circumstances, and v) business strategies, both of the taxpayer and its related parties involved in the operations subject to consultation,
e. Details of the search performed in the respective databases to obtain the comparable to be used. The date on which the search was performed attaching the screenshots of the filters applied in the databases, the selection and discarding matrix of the comparable. The reasons for the selecting the proposed method, in the terms contemplated for the Integral Transfer Pricing Report,
f. Copies of existing contracts, agreements or arrangements entered into by the taxpayer with related or unrelated parties, which affect, directly or indirectly, the operations covered by the valuation consultation. If applicable, copies of the cost sharing agreements, including the cost sharing criteria,
g. Audited balance sheet and income statement of the taxpayer for the last tax year as of the date of filing the consultation, including the notes to the financial statements. If the taxpayer is not required to have audited financial statements, the balance sheet, income statement and accounting books at the highest level of detail,
h. Audited balance sheet and income statement of the taxpayer’s related parties subject to the analysis, including the notes to the financial statements. If the taxpayer’s related parties are not required to have audited financial statements, the balance sheet, income statement and accounting books at the highest level of detail,
i. Balance sheet and income statement of the companies proposed as comparable for the last fiscal year. This requirement is not applicable if the taxpayer proposes the Comparable Uncontrolled Price (CUP) Method, and
j. Any other relevant information, data, or documentation that the applicant considers necessary to support the methodological proposal for valuation of related party transactions.
Application report:
In the application report the taxpayer must include the following information:
a. The working papers in Excel including: the indicator (or price) of the taxpayer, the indicators (or prices) of the comparable, comparability adjustments, interquartile range, among others, depending on the methodology.
b. Description and reasoning of any particular fact or circumstance of the fiscal year analyzed that affected the valuation of the prices or financial margins of the analyzed party.
c. The taxpayer may not file a new report when the tax authority has initiated an assessment procedure.
Regulation NAC-DGERCGC15-00000571
Deadline for submitting the request:
The request may be filed until the last working day of February of the tax period in which the application of a higher limit of deductibility is intended. For fiscal year 2021, the request may be filed until the last business day of March.
Report of transfer pricing adjustments:
In the event that, upon application of the methodology approved, there is a transfer pricing adjustment, the taxpayer must report such on the income tax form.
Substitute tax returns:
If the increase of the deductibility limit is approved, the taxpayer is able to file substitute tax returns regarding the years which income tax returns was filed prior to the notification of the response to the request. The substitute tax return must be filed within 60 days after the notification of the response.
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