The Tax Administration (Superintendencia Nacional de Administración Tributaria, SUNAT) published on its website Report 097-2018-SUNAT/7T0000 (the Report), clarifying the attribution of net passive income of CFC rules for its Peruvian shareholders.
Peru’s “Controlled Foreign Company Rules” (CFC Rules) have been in force since January 1, 2013. The rule applies to a Peruvian resident, who controls a non-domiciled entity that, according to the law, qualifies as a Controlled Foreign Company (CFC) regarding their passive income. The non-domiciled entity shall be subject to CFC if such entities are established in tax havens or in countries where the income tax rate is equal to or less than 75% of the income tax rate in Peru.
A non-domiciled company shall be deemed controlled by a Peruvian resident when, at the end of the fiscal year (December 31), directly or indirectly (solely or together with any related party) he or she holds more than 50% of the equity, benefits or voting rights of the non-domiciled entity.
Thus, CFC Rules shall be applicable to passive income received (not necessarily distributed) by a company directly or indirectly controlled by a Peruvian resident. The passive income includes dividends, interests, royalties, and capital gains arising from sales of real estate sales and securities.
To the extent the passive income falls under this rule, such income is subject to income tax in Peru. The CFC rules are in force in order to avoid the deferral of income tax on passive income obtained from CFCs by domiciled taxpayers, provided such companies are situated in tax havens or jurisdictions with nil or reduced tax rates.
Relating to the long-standing CFC rules, the Ministry of Finance clarifies the following issues regarding the attribution of net passive income of a CFC to its Peruvian resident shareholders:
Source: Peruvian Government
Transfer Pricing Associates introduces TPA LATAM Desk. TPA LATAM Desk specialises in the development and implementation of LATAM Transfer Pricing systems to assist multinational enterprises (MNEs) to proactively and efficiently manage and implement their transfer pricing policies in a cost-effective, practical and swift manner; ensuring compliance with local transfer pricing legislation across LATAM.