PERU Trends and Developments Contributed by: Camilo Maruy, Maite Colmenter, Roberto Polo and Llanet Gaslac, Rebaza, Alcázar & De Las Casas
even if the income is not attributable ‒ in order to avoid economic double taxation. Non-application of the CFC Rules to income generated by an NDCE held through a local trust According to Article 14-A of the LIR, trusts are trans - parent vehicles, so the income they generate is attrib - uted to the settlor. Thus, the tax treatment of income earned through trusts depends on the status of the settlor ‒ whether an individual or legal entity, resident or non-resident ‒ as well as the nature of the income earned through the trust (eg, capital or business income, Peruvian or foreign-source). If the settlor is a resident individual, the recognition of foreign-source income by a trust ‒ for purposes of recording and attributing it to the settlor for taxation ‒ must be based on the income actually received by the trust, as expressly stated in Article 29-A of the LIR. This means the trust will only record income when it receives dividends or profits from the NDCE, which are measured according to the accounting and finan - cial policies applied in the jurisdiction where the enti - ty is incorporated or located. Prior to such receipt, no income is considered to have been realised, and therefore, no accumulated earnings should be record - ed or attributed to the settlor. In this context, there is no attributable income and the CFC Rules do not apply. Instead, the specific rules of the LIR for foreign- source income earned through trusts apply. It is also important to highlight that both the scope of application of the CFC Rules and the requirements for an offshore company to be classified as an NDCE subject to the regime are limited to cases in which the entities are owned by resident taxpayers. How - ever, trusts do not qualify as taxpayers under Article 14 of the LIR and therefore are not subject to the CFC Rules. As a result, income is only taxed when actually received, under the general income tax regime. Only at that point must the trust recognise and record the foreign income for later attribution. Irrevocable and discretionary trust with estate planning purposes An irrevocable and discretionary trust is a type of trust in which the settlor cannot amend its terms once
established, and the trustee has discretion over the management and distribution of the trust’s assets in accordance with the provisions of the trust deed. The authors consider that an irrevocable and discre - tionary trust established for estate planning purposes should not qualify as an NDCE, as it functions as a vehicle for the administration of assets contributed in favour of the beneficiaries upon the settlor’s death. This is based on the understanding that the adminis - tration of the assets contributed to the trust is carried out at the trustee’s discretion, and the settlor has no ability to amend, terminate, or interfere with the fidu - ciary arrangement, nor any control over the manage - ment of the assets and their income. It is worth recall - ing that one of the requirements for a trust to qualify as an NDCE under the LIR is that, at the end of the tax year, the taxpayer ‒ alone or together with related parties domiciled in Peru ‒ holds a direct or indirect interest in more than 50% of the capital, profits, or voting rights of such entity. This condition does not arise in the case of an irrevocable and discretionary trust. Therefore, if the settlor has no participation or control over the trust’s results, it should not be clas - sified as an NDCE. The CFC Rules likewise do not apply to the beneficiar - ies, as they have no enforceable rights over the trust assets, only mere expectations. However, if the settlor retains the power to revoke the trust or exercises discretion over distributions (either because the trust deed permits such interpretation or it is observed in practice), the SUNAT would have grounds to argue that the trust qualifies as a vehicle subject to the CFC Rules, thereby triggering tax obli - gations and potential penalties. Tax treatment of a donation to a trust Donations to non-domiciled trusts do not generate Peruvian-source income nor do they qualify as pas - sive income under the CFC Rules. Therefore, no tax - able event is triggered, even if the donated assets are financial instruments issued by Peruvian companies or vehicles. Moreover, the trust is not considered a related party of the donor nor a legal entity for tax purposes.
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