PERU Trends and Developments Contributed by: Camilo Maruy, Maite Colmenter, Roberto Polo and Llanet Gaslac, Rebaza, Alcázar & De Las Casas
This position asserts that income attribution should be based on the percentage of participation the ben - eficiaries hold in the trust’s results. Position in favour of the settlor This view holds that the settlor, by retaining the power to revoke the trust or direct its distributions, maintains economic control and should therefore be considered the taxpayer. Ownership over the results is seen as the unrestricted ability to reclaim or revoke the trust’s assets and income, to decide on distribution in the settlor’s own favour, or to redirect distribution to third parties. The beneficiary, by contrast, merely has an expectancy right, without a guarantee of receiving income. Despite these opposing views, the authors believe it is essential to examine, on a case-by-case basis, wheth - er the income generated by the trust should be attrib - uted to the settlor or the beneficiary, in accordance with the provisions of the trust deed. In the authors’ view, the settlor should be considered the taxpayer if, after such analysis, the following conditions are met: • the settlor retains the power to revoke or amend the trust; and • the settlor has decision-making power over the distribution of income. The authors do not believe it would be reasonable to require a beneficiary ‒ who merely holds an expectan - cy right to receive certain income ‒ to pay income tax, especially when there is a possibility that their expec - tation may never materialise if the settlor decides to revoke the assets or change the beneficiaries. Since the settlor ultimately decides whether the income generated by the trust is distributed to the beneficiar - ies as a gratuitous transfer, it follows that the settlor has the effective right to such income. Therefore, the settlor should be considered the owner of the NDCE and the taxpayer for income tax purposes under the CFC Rules. This interpretation is consistent with the position of the Peruvian Tax Authority (SUNAT) (Report No 049-2017-SUNAT), which states that if the trust does not have a separate legal personality, the settlor con -
trols the results. Furthermore, gratuitous transfers received by individuals are not subject to income tax, meaning beneficiaries should not be taxed on income they neither control nor are guaranteed to receive. Issues regarding non-attributable income Article 115 of the LIR excludes certain types of pas - sive income from attribution, such as: • Peruvian-source income; and • income taxed in another country at a rate higher than 75% of the Peruvian income tax rate. When such income is not attributed, the resident tax - payer will only be taxed once the NDCE distributes it in the form of dividends. At first glance, this may seem beneficial, as the CFC Rules would not apply to such income, and tax would only be triggered upon distribution to the Peruvian taxpayer. However, in these cases, a situation of dou - ble taxation may also arise, as illustrated in the fol - lowing examples. • Example 1 (foreign-source income): a foreign com - pany earns a capital gain in Peru, which is taxed at 30%. It then distributes dividends to a resident taxpayer, who is again taxed on those dividends as foreign-source income (up to 30%). The initial tax paid in Peru cannot be used as a credit because the income is not attributable. • Example 2 (income taxed at source at a rate higher than 75% of the Peruvian income tax on similar income): an NDCE invests in US stocks, where dividends are taxed at 30%. Since this income is not attributable, it is taxed again in Peru upon distribution, resulting in double taxation. This issue also arises when investing in countries with different withholding tax rates. If the rate is lower than 75% of the Peruvian tax rate, the CFC Rules apply; if it is higher, the regime does not apply, but tax is levied upon distribution. In both cases, the lack of recogni - tion of foreign taxes as credits results in an excessive tax burden. Therefore, the authors believe that taxpayers should be allowed to use the foreign tax paid as a credit ‒
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