Peru :Amendments to Transfer Pricing rules

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In Peru, Law Decree No. 1312 was published on 31 December 2016. The Decree amended the existing Transfer pricing reporting requirement by accepting the proposed changes by the Organization for Economic Cooperation and Development (OECD) within the framework of Base Erosion and Profit Shifting (BEPS) Action 13 final report. The decree provides a requirement for filing the Country-by-Country (CbC) report with a master File and a local file. The obligation to submit the local file is applicable for the 2017 financial year, while the submission of the master file and CbC reporting is compulsory from the beginning of the 2018 financial year.

In accordance with the new reporting requirements, taxable persons with annual revenue for the financial year of more than 2,300 tax units are required to provide the local file. Taxpayers who are members of a group with an annual turnover of more than 20,000 tax units (approximately US $ 23.82 million) are required to provide the master file with information on the Group’s business and TP policies. Taxpayers who are members of a group of multinational companies are required to submit the CbC report annually with information on revenue, taxes and business activities for each company within the group;

The Decree also amended the rules for the setting of the pricing of cross-border commodity transactions. According to the decree, the comparable uncontrolled price (CUP) method is the most appropriate method for determining the market price of commodities in commodity transactions between associated companies. In addition, the Decree introduces general Transfer pricing rules for intra-group services. The Decree established a set of criteria that can be used to classify services as low-value adding intra group services.

Peru-FTA with Honduras entered into force

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The Free Trade Agreement (FTA) between Peru and Honduras entered into force on 1 January 2017.

The new trade agreement immediately abolished Honduran taxes on 84% of Peruvian exports and provided that the remaining duties will be eliminated within a maximum of five years.

The main Peruvian products benefiting from the FTA are: asparagus, artichokes, grapes, pineapples, mangoes, avocados, quinoa, kiwi, cañihua, peppers, coffee and maize which will have immediate access to the Honduran market with zero obligations.

Canada and Peru: Social Security Agreement enters into force

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The Social Security Agreement between Canada and Peru will enter into force on 1st March 2017. It will be effective from 1st March 2017.

Peru: Amendments to income tax rates

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In Peru, Law Decrees Nos. 1258 and 1261 establishing certain amendments to the Income Tax Law were published in the Official Gazette on 8 and 10 December 2016 respectively.

According to the amendments the general corporate income tax rate has been increased from 28% to 29.5%.

The income tax rate for capital gains derived from the disposal of immovable properties situated in Peru and owned by Peruvian non-residents has been reduced from 30% to 5%. For dividends derived from Peruvian sources, the income tax rate has been reduced from 6.8% to 5%. However, for dividend distributions made in 2017 but where the corresponding profits were generated between 1 January 2015 and 31 December 2016, the previous rate of 6.8% will be applicable.

These amendments are effective as from 1 January 2017.

Peru-Issued Decree on temporary tax amnesty regime to regularize unreported assets

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The Executive Branch of Peru issued Decree No. 1264 on 11 December 2016 providing for a temporary tax amnesty regime to regularize unreported assets.

The benefits of the tax amnesty regime are the abolition of fines, sanctions and any past income tax liabilities related to the unreported assets.

Individuals and estates of deceased persons who were resident in Peru in any fiscal year prior to 2016 may be able to apply for the tax amnesty regime. But individuals who from 2009 have held or currently hold a position in the government and their spouses, concubines or any relatives within the second degree of consanguinity and second degree of affinity will not be able to apply for the tax amnesty regime. Also, individuals convicted of certain crimes will be unable to apply for the regime.

Unreported income which was generated up to 31 December 2015 may be subject to the tax amnesty regime. But, assets in terms of money, goods and/or rights which were located in blacklisted jurisdictions are excluded from the regime.

The tax rates applicable to this tax regime are as follows:

  • 7%-in case of unreported income is declared, repatriated and invested in Peru; and
  • 10%-in case of declaration only of the unreported income to the tax authorities;

The tax regime is effective from 1 January 2017 and eligible taxpayers will be able to apply for the regime until 29 December 2017.

Peru: Government proposes higher corporate taxes

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In August 2016 the Government of Peru presented a bill to the parliament which stated its intention to increase corporate income tax for large and medium-sized companies but to reduce it for small companies. The standard rate for large companies (currently 28%) would be returned to 30%, while the rate for small companies would be 10% for 10 years.

However, withholding tax on dividends would be returned to 4.1%, and the president has said he wants to introduce tax credits for large companies which reinvest profits. In September 2016 the government announced plans to restore a special 15% corporate income tax rate for fish farming.

IMF report comments on Peru’s fiscal policy

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On 15 July 2016 the IMF published a report following the conclusion of talks with Peru under Article IV of the IMF’s articles of agreement.

Peru’s economy has weathered the economic crisis and has become the largest growing in the South America region. Growth in 2015 reached 3.3% owing to higher metal production, increased fishing and a recovery in the service sector. Activity could increase further in 2016 and 2017 if domestic projects currently in the pipeline are carried out effectively.

The IMF recommends that gradual fiscal consolidation is necessary. In addition to containing current spending the recommendations include improving the low revenue collection by streamlining the tax administration; reducing informality and exemptions; and protecting the tax base from potential profit shifting by multinational corporations.