Ecuador: Do You Know What Information Can Be Requested By The Internal Revenue Service?

The Internal Revenue Service has ample powers to request information from taxpayers and controlling entities. The Tax Code, however, provides that only the professional secrecy¹ may be argued in the event of any SRI's requests for information.

Ecuador's taxation framework gives the Tax Administration the power to request information from all public sector entities, corporations, private organizations, controlling bodies, financial institutions and organizations belonging to the popular and solidarity financial sector as well as from individuals in order "to comply with its duties regarding tax determination, collection and control"². It can be inferred, therefore, that the SRI is empowered to ask any persons – with the exception of religious ministers and the taxpayers' spouses or common-law spouses and relatives (in the fourth degree of consanguinity and second degree of affinity).

It is important to clarify that although "matching information" with other taxpayers can be used as a basis for the SRI's direct determination, it does not mean that the law grants more value to information provided by third parties versus a report from a taxpayer who is being audited. In fact, there are judicial precedents denying the possibility of using third party statements as a basis for determining a taxpayer's tax obligation.

Every person with tax residence in Ecuador is obligated to deliver the information requested by the Tax Authority, even in respect of property located abroad.  Whoever provides false, incomplete, disfigured or adulterated reports, quantities, circumstances or antecedents will incur "tax defrauding" crime.

In respect of property located abroad, the Tax Administration is able to know what is directly declared by a taxpayer. Nevertheless, although its powers do not reach foreign entities or institutions, the Tax Administration has entered into agreements for an exchange of tax information based on the OECD Tax Information Exchange Agreement and Double Taxation Avoidance Agreements comprising clauses providing for an exchange of information.

To sum up, the SRI is legally able to gain access to all kinds of data, numbers and documents, provided that they are not protected by professional secrecy. All requests for information addressed to the taxpayers must be answered in a complete, transparent and all-embracing fashion.

Footnotes

1 Tax Code – Article 98 – Third party duties:  Pursuant to articles 24 and 27 of this Code, every time it is ordered by the competent authority from the relevant tax administration, any individual by himself or as representative of a corporation or of an economic entity with no legal status shall be obligated to appear as a witness or to provide reports or to produce any documents in his possession in order to determine the tax obligation of another taxpayer.  The obligation mentioned in this paragraph cannot be requested to religious ministers regarding matters pertaining to their ministry, or to professionals if entitled to invoke the professional secrecy, or to the taxpayers' spouses or common-law spouses and relatives in the fourth degree of consanguinity and second degree of affinity.

2  Article 20 of the Law that created the Internal Revenue Service.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.