Peru is one of the lucky countries not riddled with uncertainty. President Ollanta Humala completed the first year of his five-year term in July 2012, managing to push through significant economic reforms in the private pension fund and tax systems."The ...
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Peru is one of the lucky countries not riddled with uncertainty. President Ollanta Humala completed the first year of his five-year term in July 2012, managing to push through significant economic reforms in the private pension fund and tax systems.
"The entire Peruvian market is waiting for tax reforms to be announced," Estudio Ferrero's tax leader Walker Villanueva Gutierrez had said while the Ministry of Finance, having been granted legislative power by Peru's congress for a 45-day period, worked on the new rules.
The new legislation is considered significant with changes made to transfer pricing rules, the adoption of new controlled foreign corporation (CFC) rules and new general anti-avoidance rules (GAAR), which were of particular interest to tax professionals.
"The main concern of all tax lawyers is the 'substance over form' doctrine," said one adviser. "This doctrine/provision allows the individual tax auditor to determine whether a company acted in a certain way simply to achieve a tax benefit. This gives a lot of power to the tax auditor."
The new anti-avoidance rules place the burden of proof on the taxpayer to convince tax authorities that any structure resulting in a tax benefit was based on commercial and business grounds and not with the sole purpose of minimising taxes.
Another notable legislative change, adopted in February and July 2011, concerns the indirect transfer of shares. When shares issued by a Peruvian company are indirectly transferred they will be considered Peruvian sourced income and taxed at a rate of 30%.
Gilberto Ramos, senior associate at Rubio Leguía Normand, explained: "As of July 2011, a taxable indirect transfer of Peruvian shares is deemed to occur when shares of a foreign entity's capital stock, which in turn owns, directly or indirectly, shares of a Peruvian entity, are transferred and both of the following conditions are met at any point during the 12 month-period before such transfer: (i) 50% or more of the fair market value of the foreign shares to be transferred is derived from shares or participation rights representing the equity capital of one or more Peruvian entities; and (ii) the foreign shares to be transferred represent at least 10% or more of the equity capital of the non-resident entity."
The new provision poses several limitations for exit strategies of foreign investors that acquire Peruvian companies through special purpose vehicles established abroad – such as a sub-holding company set up in a tax-friendly jurisdiction that does not tax capital gains, Ramos added.
"We expect challenges in cross-border transactions and there are many such transactions going on in Peru," another adviser said.
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