globaltaxnews.ey.comSign up for tax alert emailsPrintDownload

08 September 2023

Peruvian Supreme Court establishes guidelines to determine Peruvian-source income for nonresident entities

  • The Peru Supreme Court has established guidelines to determine whether income obtained by nonresident entities qualify as Peruvian-source income according to the Peruvian Income Tax Law.
  • Whether intangible assets generate Peruvian-source income generally depends on whether they are economically used within Peruvian territory.

In a recent court ruling, the Supreme Court analyzed whether a payment that a Peruvian resident entity made to a nonresident entity qualifies as Peruvian-source income, in accordance with provisions of article 9b of the Peruvian Income Tax Law related to income derived from goods and rights located or economically used within Peruvian territory.

Background

Article 9b of the Peruvian Income Tax Law considers as Peruvian-source income the income derived from goods or rights that are physically located or used within Peruvian territory.

Nonresident entities are taxed In Peru under a source-based taxation criteria, based on the principle that income is generated within Peruvian territory.

Court Ruling 17905—2021

On March 23, 2023, the Supreme Court issued Court Ruling 17905—2021, analyzing whether income that a Peruvian resident entity paid to a nonresident entity qualifies as Peruvian sourced income.

The facts of the case involved a Peruvian tax-resident entity making payments to a nonresident entity in exchange for the nonresident entity's incorporating a Newco in Peru, contributing mining rights to Newco and issuing Newco shares to the Peruvian entity. The Peruvian entity did not perform any withholding under the assumption that Article 9b of the Peruvian Income Tax Law did not apply to the payments made to the nonresident entity and thus the payments did not qualify as Peruvian income.

The Supreme Court concluded that Article 9b of the Peruvian Income Tax Law establishes that taxation of nonresident entities in Peru is based on the source criteria when the income earned by nonresidents is created by (i) goods that are located within Peruvian territory or (ii) rights/goods that are economically used within Peruvian territory. The Court's decision emphasizes that these criteria should be analyzed considering the economic nature of each transaction.

Therefore, applying article 9b of the Peruvian Income Tax Law and the source criteria, the Supreme Court concluded that the payments the Peruvian entity made to the nonresident entity qualified as Peruvian-source income based on the economic use within the country, applicable for intangible goods, and thus should have been subject to the corresponding tax withholding.

———————————————

For additional information with respect to this Alert, please contact the following:

Ernst & Young Asesores Empresariales S.C.R.L, Lima

Ernst & Young LLP (United States), Latin American Business Center, New York

Ernst & Young LLP (United Kingdom), Latin American Business Center, London

Ernst & Young Tax Co., Latin American Business Center, Japan & Asia Pacific

Published by NTD's Tax Technical Knowledge Services group; Carolyn Wright, legal editor

Document ID: 2023-1494

 
 

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

 

Copyright © 2024, Ernst & Young LLP.

 

All rights reserved. No part of this document may be reproduced, retransmitted or otherwise redistributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP.

 

Any U.S. tax advice contained herein was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.

 

"EY" refers to the global organisation, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.

 

Privacy  |  Cookies  |  BCR  |  Legal  |  Global Code of Conduct Opt out of all email from EY Global Limited.

 


Cookie Settings

This site uses cookies to provide you with a personalized browsing experience and allows us to understand more about you. More information on the cookies we use can be found here. By clicking 'Yes, I accept' you agree and consent to our use of cookies. More information on what these cookies are and how we use them, including how you can manage them, is outlined in our Privacy Notice. Please note that your decision to decline the use of cookies is limited to this site only, and not in relation to other EY sites or ey.com. Please refer to the privacy notice/policy on these sites for more information.


Yes, I accept         Find out more