PERU Law and Practice Contributed by: Alfred Kossuth Wieland and Edgardo Bernal Santos, Thorne, Echeandia & Lema Abogados
potentially Chancay) grant broad exemptions from CIT, VAT, excise tax and customs duties, making them vehicles to defer/mitigate tax on import, processing and re-export operations. • Asset basis step-up and depreciation: (a) mining concessions and similar rights can be amortised over the mine’s projected life either from the production starting date or when mini - mum production thresholds are met, allowing accelerated recovery of acquisition cost; and (b) investment projects in certain sectors (aqua - culture, forestry, infrastructure in SEZs) may allow for accelerated depreciation rates (often 20% for specific assets), effectively stepping up the depreciation’s base and front-loading deductions. • Loss utilisation and group planning: (a) Peru allows carry forward of net operating losses under specific rules, but there is no tax group consolidation – planning is usually focused on placing income and deductions within the same taxpayer (ie, holding company level versus operating company) and sequenc - ing projects to maximise the use of losses; and (b) because group consolidation is unavailable, intra-group transactions (services, royalties, financing) must follow transfer pricing rules but can be used, within limits, to align taxable profits with functions, assets and risks in lower tax or incentivised entities. • Transfer pricing and treaty structuring – transfer pricing applies to related party and tax haven transactions, with local file, master file and coun - try-by-country reporting obligations – applying arm’s length pricing and appropriate transfer pric - ing methods is essential to avoid income adjust - ments from the Peruvian Tax Administration. Using treaty resident “blocker” companies (see 9.4 Tax on Sale or Other Dispositions of FDI ) can reduce withholding on outbound payments and allow capital gains exemption or reduced rates on exit, subject to substance and anti-avoidance rules. 9.4 Tax on Sale or Other Dispositions of FDI Peru does not generally exempt foreign investors from tax on Peruvian source capital gains; instead, specific
rules and reliefs apply, depending on the asset and the investor’s status. • Shares and other equity interests: (a) capital gains realised by non-residents on the sale of shares considered Peruvian source (ie, shares in a Peruvian company, or cer - tain indirect transfers of substantial Peruvian assets) are generally taxable – non-listed share transfers are generally taxed at 30%, while capital gains from listed share transactions on the local stock exchange are subject to a 5% income tax; and (b) tax on certain indirect share transfers and reorganisations may be relieved or deferred if statutory requirements are met, but there is no blanket exemption for FDI dispositions – specific exceptions might lower the impact of taxes (eg, conversion of debentures into shares, certain reorganisations). • Real estate and other assets: (a) gains from the transfer of Peruvian real prop - erty are considered taxable Peruvian source income– for FDI on real estate, project assets or concessions, transfers typically trigger Peru - vian tax if there is no tax treaty relief; and mining concessions and similar rights are subject to tax. Use of “Blocker” Corporations and Treaty Vehicles Foreign investors might interpose a holding (“blocker”) company in a jurisdiction that has a favourable double tax treaty with Peru or is a member of the Andean Community, with several potential benefits, including: • reduced or zero withholding on dividends, interest or royalties under the treaty, subject to sharehold - ing thresholds, beneficial ownership tests and, in some cases, minimum holding periods; • reduced taxation of capital gains at exit where the treaty allocates taxing rights to the investor’s residence state or limits Peru’s tax on share trans - fers (for example, by reserving source state tax - ing rights only where the shares derive their value principally from Peruvian real estate, or where a substantial participation threshold is exceeded) –
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