Peru: Amendments to the TP rules for cross–border commodity transactions
Gloria Guevara of Deloitte Peru reports on the country’s recent efforts to demystify its TP rules for cross-border commodity deals, as uncertainty remains.
Several years ago, Peru included in its TP legislation specific rules for cross-border commodity transactions. There were based on the so-called “sixth method”, which has been applied in other Latin American countries with certain particularities. However, until now it has been exceedingly difficult both for taxpayers and the Peruvian Tax Authorities to establish an efficient approach to apply such regulation. As a result, in December 2022, the TP rules regarding cross-border commodity transactions were amended once again, with the tax authority’s objective to conduct an appropriate control over transactions involving commodities.
Changes to article 113-A of the Regulations of the Income Tax Law were implemented through the publication of Supreme Decree 327-2022 on December 29th 2022. This amendment, which entered into force on January 1st 2023, extends the application of the comparable uncontrolled price method (CUP) for the analysis of certain commodities and products whose price is based on a commodity. The recent modifications provide greater clarity regarding the communication that taxpayers subject to this regulation must submit to the tax authorities and the minimum conditions for compliance to be considered complete. This is among other aspects that were previously unclear to the taxpayer regarding this obligation.
In fact, according to article 32-A of the Income Tax Law, for exports or imports of goods with a known quotation, taxpayers must submit a sworn declaration for the day on which the shipment or landing of the good is made. The notice should include all the information regarding the terms agreed between the parties involved in the transaction, such as the identification of the counterpart, terms of the contract, amount of the transaction, characteristics of the goods involved, and any other conditions that may affect the price agreed. It must also indicate the method applied for the TP analysis in case of using methods different from the CUP, among other information.
Although the Supreme Decree clarifies the information that must be provided for the notice to be considered correct and complete, it still has space for improvement. For instance, although this modification allows taxpayers to present an amended notice, it only allows changes for three items (incoterm, identification of the recipient of the export and the port of destination). There could be changes in other conditions such as the weight and quality of the good, which would change the data of the operation and would cause the original notice to be inaccurate and as such, subject to a potential review by the tax authorities. In such a case, the tax authorities will be able to apply the sixth method. Therefore, for determining the arm’s length price, they will consider the quotation date as of the completion of the shipment for exported goods, or of the date of completion of receipt in the case of imported goods.
Also, if the taxpayer uses a method different from the CUP, they must present a “technical support” showing the economic, financial, and technical reasons that justify the use of a different method. Previously, the regulations referred to a “technical report” to support the use of a different method, however this has been recently modified through the Supreme Decree and now the term "technical support" is used instead. In this regard, the novelty of the modification is that part of the technical support should be informed in the Local File Informative Affidavit and thus, regulations no longer require a separate technical report to justify the use of another method. This may be considered an improvement since taxpayers subject to this regulation would not be bound to file an additional formal obligation.
However, the content of this support has not changed much from the “technical report”, and it still requires the taxpayer to prepare a qualitative and quantitative analysis to justify the use of a method different from the CUP. Thus, this technical support must show, for instance:
The distortion that the CUP method would have on the comparability if that method had been applied (using a quantitative analysis);
The lack of comparable transactions and the impossibility of performing reliable comparability adjustments;
Documentation that proves the lack of comparable transactions; or
A quantitative and qualitative analysis that shows the lack of reliability of the CUP, among other demanding requirements.
If the taxpayer does not present the above technical support, or if the tax authorities consider that the support presented does not prove the relevance of another method, the tax administration can apply the most appropriate valuation method according to its own analysis, which is understood to be the sixth method.
In summary, recent changes have provided improvements to TP regulations on cross-border commodity transactions, in particular regarding the filing of communication and the kind of amendments that may be allowed. However there still remains uncertainty as to the kind of support that may be accepted by the tax authorities to allow the use of a different method from the CUP, and whether they will allow the amendment of other items of the notice, among other concerns.