Peru: New Peru transfer pricing guidance addresses related-party share transfers

By Carlos Vargas Alencastre & Franz Salazar Anccasi, TPC Group, Lima, Peru

Peru’s tax administration on 16 May issued new transfer pricing guidance addressing the tax treatment of transfers of undervalued Peruvian entity shares involving foreign related parties.

The guidance concludes that for such undervalued transfers, the cost of the acquirer’s shares should be the acquisition price plus any transfer pricing adjustment.

The guidance, Informe No. 057-2019-SUNAT/7T0000, stipulates that any transfer pricing adjustment on the transfer of a Peruvian entity’s shares involving a foreign related party would affect both the acquirer and issuer if there would be less Peruvian income tax or greater allowed deductions or costs applying Peruvian income tax laws.

In that context, the guidance concludes that in any cross-border transaction between related parties involving a Peruvian entity’s shares, a transfer pricing adjustment by the taxpayer or Peruvian tax administration might affect both the recognized income tax of the issuer and the cost basis of the acquirer. It also adds that this tax fiction should only be reflected as an addition to income tax, not in financial statements.

Therefore, the new cost basis of the acquirer might be the acquisition price plus any transfer pricing adjustment since any transfer pricing adjustment affects both the recognized income tax of the transferor and the cost of the acquirer.

In our opinion, this new Peruvian tax administration guidance is welcome because it will reduce the incidence of international double taxation.