Home » Notice No. 006-2023-EC | What is a CVP?

Notice No. 006-2023-EC | What is a CVP?

What is a CVP?

Quito, July 26, 2023

A CVP is a Prior Valuation Consultation, according to Ecuadorian legislation or, at the level of the OECD Guidelines applicable in terms of transfer pricing to multinational companies and tax administrations, APA for its acronym in English, (Advance Price Agreement). This procedure allows for an agreement or an opinion by the Tax Administration to determine in advance the appropriate criteria in the transfer prices applied to certain operations, throughout a determined period. In this agreement, a series of criteria can be determined, such as the method, the comparables, the pertinent adjustments and the critical assumptions or hypotheses related to future events.

CVPs or APAs must be initiated by the taxpayer and involve negotiation between the taxpayer, one or more related companies, and one or more tax administrations. Prior agreements can be unilateral, when only one tax administration and one taxpayer are involved; and bilateral or multilateral when two or more tax administrations are involved.

CVPs or APAs, in addition to increasing the deductibility limit of expenses for services received from related parties or royalties paid, can be very useful for taxpayers because they provide a higher level of tax certainty, reduce the probability of double taxation and can prevent the emergence of transfer pricing conflicts.

But for this negotiation process, the tax administration may need details about the forecasts and their foundations, so it is necessary for the taxpayer to consider that it is a process that has a depth of analysis for which it must be carried out by the most suitable people. and with extensive knowledge of transfer pricing considering all the supports.

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