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March 9, 2023

Peruvian Tax Court holds international migration into Double Tax Treaty country does not prevent per se application of Double Tax Treaty benefits

  • The Peruvian Tax Court recently published Resolution 08835-12-2012, establishing that the migration of an entity from Panama to Canada which in turn owns the shares of a Peruvian company, does not prevent the application of the benefits of the Peru-Canada Double Tax Treaty (DTT) for capital gains, upon the subsequent sale of the Peruvian shares.


The Peruvian Tax Court analyzed the case of a legal entity which was a shareholder of a Peruvian entity that migrated from Panama to Canada in 2013 and once redomiciled in Canada, obtained capital gains from the transfer of Peruvian shares carried out in July 2014.

As a result of the transaction, capital gains tax was paid to the Peruvian Tax Authority in September 2014. The Canadian entity subsequently requested the refund under the rules of the Peru – Canada DTT.

Taxpayer’s position

The Canadian entity invoked the application of the tax benefits of the Peru-Canada DTT as the entity qualified as a Canadian resident at the time of the transfer of shares.

Under Article 13 of the Peru-Canada DTT, capital gains obtained by the Canadian resident from the disposal of the Peruvian shares, whose value does not derive from real state located in Peru, is only taxed in Canada.

Based on this premise, the Canadian entity requested from the Peruvian Tax Authority a refund of the undue taxes paid in Peru, as the capital gain was only subject to tax in Canada.

Peruvian Tax Authority’s position

The Peruvian Tax Authority denied the refund, interpretating that the tax benefits of the Peru-Canada DTT should not be applicable, asserting the following as a consequence of exchanging information with the Canadian Tax Authority: (i) the Canadian entity has not paid any Income Tax in Canada, thus no double taxation is triggered; (ii) the Canadian entity does not have employees, fixed assets, nor banking accounts in Canada; (iii) the Canadian entity does not have an economic connection in Canada, as the shareholders do not reside in Canada; and (iv) the decisions are taken outside Canada.

Under these facts, the Tax Authority interpreted that the Canadian company had an artificial structure, and that the change of domicile from Panama to Canada was made with the sole purpose of using the benefits of the Peru-Canada DTT. Therefore, the Peruvian Tax Authority concluded that the application of the Peru-Canada DTT implied a treaty shopping case, as the migration to Canada did not pursue an economic purpose, but only a fiscal one. Accordingly, the refund requested by the Canadian company was denied by the Peruvian Tax Authority.

Tax Court Resolution 08835-12-2012

Based on the background facts, the Tax Court concluded the following:

  • The Canadian company is in fact a tax resident of Canada.

  • The income obtained by the Canadian company is regulated under the provisions of Article 13 “Capital gain” of the Peru-Canada DTT.

  • The mere fact that the Canadian company has not paid Income Tax in Canada, does not imply that the capital gains obtained by said entity must be levied with Income Tax in Peru.

  • According to the exchange of information with the Canadian Tax Authority, there is no certainty and it has not been proved that:

    • The management of the business is carried out in Panama or Peru and not in Canada.

    • No employees are located within Canada.

    • No bank accounts are held in Canada.

    • The Canadian entity has not performed commercial or administrative activities in Canada.

  • The operation carried out by the Canadian entity did not qualify as a treaty shopping case.

Therefore, the Peruvian Tax Court determined that the Peruvian Tax Authority’s assertions were not correct and instructed the Tax Authority to proceed with the refund of the undue taxes paid in Peru in favor of the Canadian entity.


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


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