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September 8, 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.


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


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