Peru: The deductibility of advertising expenses for income tax purposes: Analysis of the criteria applied by SUNAT

By Martín Ramos

In the Peruvian tax system, advertising expenses constitute a relevant component within the cost structure of companies, especially in highly competitive contexts. However, from a tax perspective, these expenses are subject to constant scrutiny by the auditors of the National Superintendency of Customs and Tax Administration (SUNAT), who apply restrictive criteria when qualifying their deductibility for income tax purposes.

The purpose of this article is to analyze the main legal and doctrinal grounds on the deductibility of advertising expenses, as well as to present the most frequent observations made by SUNAT during its audits. It concludes with a series of recommendations aimed at improving the documentary and technical support of this type of disbursements.

Legal framework

Pursuant to Article 37 of the Unified Text of the Income Tax Law (TUO of the LIR, D.S. N° 179-2004-EF), those expenses that are necessary to produce and maintain the income-producing source, as well as to preserve its value, are deductible. This provision enshrines the so-called causality principle, which constitutes a fundamental interpretative axis for the deduction of all types of expenses.

This principle has also been developed by the tax doctrine, which defines it as the requirement that the expense has a direct or indirect, immediate or reasonably necessary relationship with the probable obtainment of taxable income. The jurisprudence of the Tax Court has reiterated on multiple occasions that the formal existence of the expense is not enough; it is indispensable to prove its functional link and its effective execution (see, for example, RTF No. 01685-5-2006).

In turn, Article 44 of the same legal body establishes the categories of non-deductible expenses, among which those of a personal nature, those that are not duly supported, or those that do not respond to the economic activity of the taxpayer stand out.

Observations frequently made by SUNAT regarding advertising

Based on the criteria applied by the auditors in the audits, SUNAT has developed a particularly demanding line of interpretation with respect to advertising expenses, in which a combination of formal, substantial and subjective analysis stands out. Among the main objections raised by the Administration are the following:

- Questioning the causality principle

SUNAT frequently rejects the deductibility of advertising expenses when it considers that they do not have a direct and concrete relationship with the generation of taxable income. This is evidenced, for example, in those cases where mass media campaigns are contracted without a clear segmentation of the target public, or in sectors where traditional advertising is not a usual promotional channel.

In such cases, the Administration interprets that the lack of strategic or technical direction of the expense dissociates it from the purpose of the business, making its deduction unfeasible.

- Absence of reliability and lack of proof of execution

In accordance with the principles of reliability and documentary support, an expense must not only be duly accounted for and documented by means of valid payment vouchers, but its actual execution must also be evidenced.

SUNAT maintains, based on accounting regulations and the principle of material truth, that the invoice alone is not sufficient to prove the existence of the service. Therefore, it requires complementary means of proof: campaign schedules, deliverables, results reports, digital metrics, ad captures, among others. The lack of such elements leads to the ignorance of the expense.

- Disproportion or unreasonable expense

Another criterion applied by SUNAT is the reasonableness of the expense, understood as the consistency between the amount disbursed and the economic size of the taxpayer. Although this parameter is not expressly regulated, the Administration uses it to observe expenses that it considers excessive or not economically justifiable.

Thus, there have been cases in which companies with low sales levels have been reprimanded for advertising campaigns running for millions of dollars with no evidence of commercial return. In these cases, SUNAT presumes that the expenditure could have been used for purposes unrelated to the business or even simulated.

- Personal benefit or outside business

When the advertising expense has the effect -directly or indirectly- of benefiting a natural person, partner or relative of the owner of the company, the Administration classifies the expense as personal and not business, which makes it non-deductible in accordance with Article 44 of the LIR.

This occurs, for example, when the image of a partner is used as the central figure in the advertising campaign without a clear commercial justification, or when the advertising promotes services unrelated to the main activity of the company.

- Suppliers without operational capacity

Finally, SUNAT usually observes advertising expenses contracted with suppliers that, at the time of verification, do not have the infrastructure, personnel or accredited experience to provide the services invoiced. This finding leads to the presumption of simulation or non-existence of the service, and consequently, to the rejection of the expense.

Particularly problematic cases arise when, in addition, these suppliers have not correctly declared their income before SUNAT, which reinforces the hypothesis of simulation.

Recommendations for the proper substantiation of advertising expenses

In light of the above criteria, taxpayers should adopt a comprehensive tax compliance strategy aimed at preventing contingencies. Within this framework, the following technical recommendations are proposed:

- Complete contractual support: keep contracts, service orders, quotations, schedules, deliverables and technical reports.
- Proof of execution: keep tangible evidence of advertising dissemination, such as screenshots of ads, social media impact reports, reach metrics, media reports, etc.
- Reasonableness analysis: justify spending based on sales volume, business strategy and expected or achieved return.
- Verification of the supplier: evaluate the supplier's operational capacity before contracting it, considering its track record, personnel, technical resources and tax compliance.
- Avoid campaigns with personal connotations: design campaigns focused on the products or services of the business, and not on personal figures or messages unrelated to the business activity.

Conclusions

The deductibility of advertising expenses, although legally provided for, is subject to a rigorous evaluation by the Tax Administration, both in formal and substantive terms. The principle of causality, the reliability of the expense, the economic reasonableness and the absence of personal connotation are requirements severely demanded by SUNAT in practice.

In view of this, it is imperative that taxpayers adopt proactive compliance practices, prepare solid documentation and support their decisions with consistent commercial and legal criteria. Only in this way will it be possible to reduce the risk of objections and ensure an effective defense, both in administrative and contentious-tax proceedings.