Technical Assistance and Its Impact On Income Taxes

According to Article 9 j) of the Income Tax Law and Article 4-A of its Regulations, “Technical Assistance” is taken to mean as any independent service, whether provided from abroad or local entities, whereby the provider undertakes to use his skills through the application of certain procedures, arts, or techniques, to provide not patentable specialized knowledge, which are necessary for the production process, marketing, services provision, or any other activity the user performs.

The regulations mentioned above indicate the requirements that, concomitantly or simultaneously, must be verified the technical assistance concept the Income Tax Law refers, is configured. These requirements are as follows:

  1. Being an independent service: Which implies a requirement to “do” utilizing a company or a different legal entity than the user performs or provides the latter with a specific service or action.
  2. A local or abroad entity can provide it: It makes no difference whether the service is provided within the country or from abroad.
  3. The provider undertakes to use his skills: The provider undertakes to apply certain procedures, arts, or techniques which imply that his skills are at disposal either on knowledge of a professional order, based on the development of a trade, or acquired by the constant repetition of acts that enable him to perform with a unique specialization in the subject.
  4. The provider must provide specialized knowledge: Two considerations arise from this requirement:
    • The service provider “provides” specialized knowledge, which implies, in good faith, that the service provider “transmits” and/or “transfers” such knowledge to the user. Such knowledge transmission is materialized through recommendations, suggestions, and/or instructions.
      Thus, the concept of technical assistance involves not only doing but must also provide an added value for the user, to the extent that the latter takes direct advantage of the provider’s skills.
    • The specialized knowledge provided may correspond to technological knowledge or knowledge of a different nature.
  5. The knowledge is “non-patentable”: This differs from royalty-bearing services, where the object of the service contract is the assignment of patented or patentable knowledge.
  6. The technical assistance is necessary for the development of the taxpayer’s activity: This requirement is verified from the analysis of other conjunctive elements:
    • The fact that it is necessary implies that it is required for the normal development of some activity. If the service is dispensable, there would be no technical assistance.
    • The activity in which the technical assistance service is included, is the same of the business line of the service user, of an unaffected entity social purpose, or of the fulfillment of its functions in the case of the National Public Sector. Thus, technical assistance is interpreted as equivalent to an input in the process or activity developed by the user.
In this regard, it is convenient to consider the Tax Administration pronouncements and the Tax Court regarding the compliance with this requirement:

Report 168-2008-SUNAT/200000

“Thus, for a service to qualify as technical assistance, the service provided must have such a connection degree with the production process, marketing, services rendering, or any other activity carried out by the user, that is indispensable for the development of such process. The user would not be able to develop his activity without the provision of such service, a factor that is essential to consider the service as technical assistance”.

Letter 133-2008-SUNAT/200000

“In other words, the consulting or advisory services rendered by non-domiciled entities shall be considered technical assistance services when they enable the user to develop its production process, marketing, services provision, or any other activity that generates income for such user, not damaging the compliance with the other characteristics outlined in the regulatory standards”.
The Tax Administration has pointed out through Report N°. 139-2013-SUNAT/4B0000, that although Report N°. 168-2008-SUNAT/2B0000 states that in order for a service to qualify as technical assistance, it must be indispensable for the development of the production process, marketing, services provision, or any other activity the user performs. If the user does not have such a service, it would be impossible for him to develop his activity, not being able to emphasize that the service provided must have a substantial degree of connection with the processes in question.

On the other hand, the Tax Court, through Resolution No. 18368-8-2012, has stated the following:

  • “The third necessary requirement refers to the fact that the non-patentable specialized knowledge provided must be necessary for the production process, marketing, services rendering, or any other activity the user carries out, i.e., the service provided must have such a connection degree with the production process, marketing, services rendering, or any other activity the user carries out, that it is indispensable for the development of such process, making impossible the user develops its activity without the provision thereof (…).
  • The displayed announcement is also under the criterion outlined in the Explanatory Memorandum of Supreme Decree N°. 134-2004-EF, which establishes technical assistance as necessary when “it is essential for the development of any activity. If the service is dispensable, there is no technical assistance”. In addition, it quotes: “that activity in which the technical assistance service is subsumed, is the business line activity (…)” and that the technical assistance “serves for the development of the user’s activities that generate taxed or non-taxed income. This is reduced to understand that the technical assistance serves to generate some type of result: taxed or non-taxed”. Hence it is seen that the concept of “necessary” goes beyond the simple causality due to the type of linkage between the service provided and the activity itself the user develops intended to generate income.
  • In accordance to the above, it is evident to determine whether we are in the presence of a service that qualifies as technical assistance whose remuneration constitutes the Peruvian source income, being indispensable to verify in each specific case the configuration of the constitutive elements described above, being relevant to bear in mind that what the Income Tax Law intends to tax is not any type of service but only those services that are highly specialized and that, at the same time, are necessary for the user activity development aimed at generating income”.

On the other hand, the Superintendencia Nacional de Administración Tributaria or National Superintendence of Tax Administration (SUNAT), through Report 139-2013-SUNAT, has stated the following:

  • “(…) it is observed that a characteristic element of the concept of technical assistance must be “necessary” for the user to develop its activities (…).
  • In this regard, the concept of “necessary” referred to in paragraph c) of Article 4°-A of the Income Tax Law Regulations is based on the type of relationship that exists between the service provided and the production process, marketing, services provision, or any other activity carried out by the user according to the purpose of its business line, social purpose or fulfillment of its function, regarding the case (2); which is the relationship of necessity that must be established among the service and those processes, which must be direct (3).
  • In this context, it should be understood as stated in Report No. 168-2008-SUNAT/2B0000, concluding that a service will be considered as technical assistance when, in addition to complying with the other characteristics indicated by the regulation, transmits non-patentable specialized knowledge essential for the production process, marketing, services rendering, or any other activity carried out by the user from which the taxpayer’s income originates.
  • Thus, the essential feature (4) for such processes should not be taken as an essential service for the user to develop its production process, marketing, service rendering, or any other activity it performs. But also, those whose absence would imply that such processes would not be carried out with the expected efficiency and productivity (5) (6).
  • The concept of “necessary” according to the aforementioned above, referred to in paragraph c) of Article 4°-A of the Income Tax Law Regulations, only refers to the relationship of necessity that must be established among the technical assistance service and the production process, marketing, services provision, or any other activity the user carries out according to the purpose of its business line, social purpose or fulfillment of its function, regarding the case, being a direct relationship (7).
  • In this sense, the services intended to improve, modernize, renew, develop, or optimize the production process, marketing, services provision, or any other activity the user carries out (or a stage thereof), which these processes could not be developed, meet the characteristic element of the technical assistance concept referred to in paragraph c) of Article 4°-A of the Income Tax Law Regulations, referring to the fact that such services are necessary for such processes.
Therefore, if the referred services meet the other elements that characterize the technical assistance concept, they qualify within such concept”.
A technical assistance service qualifies as necessary, from the foregoing above, if the service subject matter is part of the Company’s business line and allows the development of the user’s activities, i.e., it allows the maintenance and growth of the income-generating activity of the service user. Note the services intended to improve, modernize, renew, develop, or optimize the production process, marketing, service rendering, or any other activity the user carries out (or a stage thereof) and those whose processes could not be developed, also qualifying as technical assistance.
Likewise, the Income Tax Law establishes certain services in which, in any case, technical assistance is presumed to exist, even when the mentioned requirements above are not met.

Among these assumptions are the following:

  • Engineering services, including the assembly execution and supervision, machinery installation and start-up, equipment and production plants, calibration, inspection, repair and maintenance of machinery, equipment, and testing performing, including quality control, feasibility studies, and definitive engineering and architectural projects.
  • Research and project development, which includes the development and execution of pilot programs, laboratory research and experiments, operating services, and technical planning or programming of production units.
  • Financial advisory and consulting services, defined as advisory services in the valuation of financial and banking entities and the elaboration of plans, programs, and international sales promotion thereof; technical assistance for the distribution, placement, and sale of securities issued by financial entities.
Finally, it is provided that technical assistance also includes the training to persons for the application of specialized knowledge.
It should be noted the rate to be applied in the case of services rendered by a non-domiciled taxpayer for technical assistance services is 15%, as determined by paragraph f) of Article 56 of the Income Tax Law.
This rate will be applied provided the following conditions are met:

  • The local user must obtain and file to SUNAT an auditing company report, certifying that the technical assistance has been effectively provided, whereas the total consideration for the technical assistance services included in the same contract, including its extensions and/or amendments, exceeds 140 UIT (Unidad Impositiva Tributaria or Tax Unit) in force at the time these were entered to, approximating in 2020 to S/ 4,300.00 and USD 1,221.00.

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