On 13 March 2025, the Peruvian Congress approved the initiative ratifying the country's adherence to the MLI, established by the Organisation for Economic Co-operation and Development (OECD).

However, for the MLI to be fully integrated into Peru's national legal framework, it must be ratified by the Executive Branch and subsequently published in the official gazette, El Peruano. After this, Peru will need to deposit the ratification instrument with the OECD to trigger the MLI's international entry into force.

Implementation of the MLI is expected to modernize Peru's network of Double Tax Treaties (DTT) by adjusting the treaties covered under the MLI. The adjustments are likely to take effect as of 1 January 2026.

Peru's DTT network currently includes treaties with Brazil, Canada, Chile, Japan, Korea, Mexico, Portugal, Switzerland and the Andean Community (comprising Bolivia, Colombia and Ecuador). However, it is important to note that the treaties with Japan and the Andean Community will not be adjusted through the MLI from the Peruvian standpoint, as they have not been selected as covered treaties.

Impact of MLI on Peru's DTT network

The entry into force of the MLI would have significant implications for Peru's DTT network, including:

• Introduction of a Principal Anti-Abuse Rule (Principal Purpose Test - PPT): This rule is designed to prevent treaty shopping, ensuring that taxpayers do not exploit treaties for tax-avoidance purposes. However, is it worth noting that the Peruvian government views the PPT as a temporary measure because the ultimate objective is to negotiate special Limitation on Benefits (LOB) clauses on a bilateral basis for each of the covered treaties, providing a more targeted approach to limiting treaty abuse.
• Carving out capital gains tax exemptions: The MLI also addresses certain capital gains tax exemptions, refining the treatment of these taxes under the treaties. Notably, under the new MLI provisions, capital gains that Canadian-resident sellers realize from the sale of Peruvian shares may become taxable in Peru if the target entity is classified as a "land-rich" entity (the estimation of the real estate threshold would include all real estate assets, rather than only nonoperating assets, as is the case under current treatment).
• Participation threshold for dividend distribution limited taxation and exemption: The MLI introduces a participation threshold for the reduction or exemption of dividend withholding tax rates under a covered tax treaty. Specifically, reductions or full exemptions will apply only if the recipient of the dividend distributions holds a "material interest" in the distributing entity for a minimum period of 365 days. Although this criterion does not apply to dividend distributions from Peruvian companies to non-Peruvian companies, it may affect dividend distributions from non-Peruvian companies to Peruvian entities.
• Enhancement of dispute resolution procedures: The MLI aims to streamline and improve mechanisms for resolving tax-related conflicts of disputes residents of signatory countries, making the resolution process more efficient.
• Modification of Permanent Establishment (PE) rules: The MLI introduces changes to the rules governing PEs, which would expand the ability of the source state to assert tax jurisdiction over business profits derived from its territory.

This development underscores Peru's commitment to align with international tax standards and enhance its efforts to combat tax avoidance and promote tax transparency.

As the MLI progresses toward implementation, watch for Alerts providing regular updates. In the meantime, companies currently utilizing or planning to use Peru's tax treaties should review their cross-border transactions with Peru to assess whether the future entry into force of the MLI could alter the tax treatment currently applicable to these transactions.