Provisions on the General Anti-Avoidance Rule enacted
The Peruvian General Anti-Avoidance Rule (GAAR) was enacted on July 19, 2012, but was suspended until the regulations were published. Following publication of the regulations in FY 2019, the suspension was lifted.
Thus, the GAAR will apply for tax audits reviewing facts, acts and situations carried out by taxpayers on or after July 19, 2012.
Legal representatives will be jointly liable for the tax debts where the GAAR has been applied, if those legal representatives took part in the design or implementation of the acts challenged by the Peruvian tax authority using the GAAR. Besides, boards of directors (for companies having a board of directors) will be responsible for approving the company’s tax planning and cannot delegate this obligation.
The regulations also established a special procedure for tax audits when the GAAR is applied. A review committee must approve the use of the GAAR by the Peruvian tax authority in each particular case.
New thin capitalization
The new thin capitalization rules extend the limit on the deduction of interest (3:1 debt/equity ratio) to loans involving either related or independent parties.
Furthermore, beginning January 1, 2021, any interest that exceeds 30% of earnings before interest, taxes, depreciation and amortization (EBITDA) for the preceding year will not be deductible, and may be carried forward for up to four years, but will always be subject to 30% of EBITDA limit.
Regulations on indirect foreign tax credits
Peruvian entities receiving foreign income by way of dividends or profits from nonresident entities will be able to deduct: (i) the tax withheld in respect of the distribution of dividends or distributed profits (direct credit); and (ii) the income tax paid by the first-tier nonresident entity (indirect credit).
In addition, the regulations establish that taxes paid abroad must be converted into Peruvian currency using the weighted average exchange rate as of December 31 of the year in which the income is attributed. It is considered that the first-tier non-resident company has distributed dividends or profits when they have been paid or made available to the legal entity resident in Peru.
Also, the income tax paid by the first or second-tier non-resident company is regarded as business income tax paid by them abroad, in proportion to the dividends or profits distributed to the legal entity resident in Peru or to the first-tier non-resident company, respectively.
Capital gains tax exemption for stock exchange transfers
Law 30341 temporarily tax exempted the capital gains obtained from transfers of securities carried out through the Lima Stock Exchange subject to certain requirements.
On October 24, 2019, Peru issued Urgent Decree 005-2019 extending the capital gains tax exemption from December 31, 2019 to December 31, 2022.
In addition, amendments were made to the parameters to determine when the securities comply with the “liquidity threshold” which are now as follows:
a) Over a period of 180 business days before the transfer, taxpayers must determine the number of days in which the daily traded amount exceeded the threshold of 6 tax units (previously 4 tax units).
b) Taxpayers must divide the number of days determined in (a) by 180 and then multiply by 100.
c) The securities comply with the liquidity threshold if the result (ratio limit) of the calculation in (b) is not lower than 45% (previously 35%).
Regulations on beneficial ownership
Peru will require Peruvian legal entities to report and identify to the Peruvian tax authority, the individuals who are their beneficial owners (anyone who holds at least 10% of the capital of a Peruvian legal entity). This obligation applies to funds, investment funds, trusts, and foreign trusts with a Peruvian administrator, joint ventures, among others.
In addition, entities must implement specific mechanisms to obtain and keep updated the information on their beneficial owners. If it is not possible to determine their direct or indirect beneficial owner, the individual holding the highest senior management position, such as a general manager or members of the board of directors, will be deemed the beneficial owner.