The Internal Revenue Service (SRI) has found that more than 1,500 companies in Ecuador may have claimed personal expenses as deductible for income tax in the 2024 fiscal year or as a value-added tax credit. This practice is considered a possible tax fraud scheme.
According to SRI, these irregularities were discovered through automated data cross-checks and analysis of electronic invoicing. The agency reports that the companies involved registered about $54 million in purchases or personal consumption on items such as designer clothing, luxury cars, jewelry, and other goods not related to their normal business activities. This led to an estimated loss of $12.9 million in unpaid taxes for the state.
The identified companies have been notified by SRI to review their accounting records. If they used these expenses as deductions or tax credits, they are required to submit amended declarations correcting the reported expenses and pay the corresponding income and value-added taxes.
SRI states: “Tax regulations are clear: only those expenses necessary and directly linked to income generation are deductible. Making personal purchases and providing the company’s taxpayer ID for invoices is not only improper but also poses a significant tax risk and leads to audit processes.”
The agency further reminds companies that using their taxpayer ID on invoices for personal consumption is not allowed and can result in penalties, fines, and interest charges. SRI emphasizes that its automated information checks are ongoing and enable it to identify operations inconsistent with declared economic activity by comparing data from third parties, electronic receipts, and other databases.
“The National Government, through the Internal Revenue Service, will continue implementing control actions to prevent and sanction tax frauds that negatively affect the country’s economy,” according to SRI.
