Peru - Transfer pricing rules amended, clarified 

A decree—DS No 258-2012-EF (published 18 December 2012)—amends the income tax law regulation (Reglamento de la Ley del Impuesto a la Renta (RLIR)) in an effort to clarify and complete the previous changes made to the income tax law relating to the transfer pricing rules.

The following transfer pricing changes and amendments are effective 1 January 2013.

Changes, clarifications of transfer pricing rules

Recent changes made to the income tax law regulation regarding transfer pricing rules include:

• Scope of application - Article 108° has been replaced, thereby eliminating the “tax damage” condition (i.e., a determination of lower taxes in the country) in order to establish the scope of application of the transfer pricing rules. With the changes to the income tax law, the transfer pricing rules apply to: (1) all transactions between international and domestic related parties; and (2) all transactions with entities located in “tax haven” jurisdictions.
• Transfer pricing adjustments - The rules clarify that “tax damage” can be considered to be a result of a tax deferral or tax losses. Also, primary and corresponding adjustments have been modified to be consistent with changes to the income tax law.
• Comparability analysis - To afford a clearer understanding of the facts and circumstances that may have influenced the determination of price, the rules allow for taking into consideration information related to the tested party and comparables corresponding to two or more years before or after the transaction under analysis.
• No comparable transactions - The rules specify when transactions between independent parties are not to be considered to be comparable transactions. A 5% percent capital participation threshold has been established in order to verify if one of the three assumptions contemplated for this purpose (last paragraph of Article 32-A d of the income tax law) is satisfied.
• Elimination of differences - The rules clarify that when transactions selected as comparables are in a different currency, a currency conversion adjustment is to be applied only if the CUP method is used. Regarding the application of the other transfer pricing methods, a currency conversion adjustment is not required.
• Transfer pricing method - The following clarifications are made regarding the application of the transfer pricing methods:
• The Resale Price method is to be used on sale and distribution transactions only when goods are sold to independent parties.
• The rules remove a provision that the Profit Split method is to be considered particularly useful under an advance pricing agreement (APA).
• When the Transactional Net Margin method is applied, only elements directly or indirectly related to the transactions under review are to be considered in determining the profit level indicator to be tested. Also, financial statements used to apply this method are to be “segmented” based on the facts of the transaction under examination. The application of this method for a total company result basis is to be avoided if there are different transactions under review that cannot be analyzed together.
• Sixth method - Some concepts and definitions regarding the application of the so-called “Sixth method” have been provided. This extension of the CUP method had been introduced as part of prior amendments to the income tax law relating to the transfer pricing provisions aimed at regulating international commodities trade transactions when an intermediary participates. Additional supporting documentation in order to demonstrate the facts of the international commodities trade transactions under review is now required. Nevertheless, clarifications—e.g., a list of commodities or product to which this method is to be applied, and the terms and conditions for the presentation of the additional required documentation—are still pending publication.
• Arm’s length range - To establish the arm’s length range, the rules retain the interquartile methodology. However, the rules provide that observations under examination equal to or falling between the minimum and maximum comparable prices or margins can be considered to be arm’s length only when the CUP method is applied and if the level of comparability is “high” (i.e., if the coefficient of variation applied to those observations does not exceed 3%).
• Advanced pricing agreements (APAs) - The APA procedures have been established. Under Peru’s transfer pricing rules, APAs can be unilateral or, if an income tax treaty is already in force, multilateral. Before the taxpayer presents its application for an APA, the rules allow for meetings between the taxpayer and tax administration officials in an effort to establish the feasibility of the APA being sought. Procedures concerning these meetings and on regulating how the meetings will function are pending. After the taxpayer submits an APA proposal, the tax administration has 36 months in which to approve, modify, or reject the APA application. If approved, the APA has a duration of three years in addition to the year of the subscription of the agreement. During this period, the tax administration may audit the taxpayer, but not in relation to the transactions covered by the APA. Also taxpayers with an approved APA must present an annual report together with the transfer pricing return to demonstrate that the transactions conducted are consistent with the clauses and specifications of the APA. The form and conditions of the annual report are still pending to be issued via regulations.

For more information, contact a tax professional with KPMG’s Global Transfer Pricing Services group in Peru:

Manuel del Rio

+51 161 13 000