Multinational companies have expanded into new markets across the globe over recent decades thanks to globalization. For such firms, transfer pricing is a crucial aspect of the international trade regime, allowing them to fairly streamline costs for transferring goods and services among legally related entities. Therefore, maximizing potential advantages from Peru’s transfer pricing regulations is crucial to any multinational with a presence in the Andean nation.
Transfer pricing regulations represent a crucial aspect of Peru’s international taxes for foreign companies doing business in the country. Those regulations are overseen by the country’s tax authority, the National Superintendency of Customs and Tax Administration (SUNAT).
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With the Peruvian government becoming more rigorous in its approach to transfer pricing in recent years, understanding its intricacies is important for the good management of your business there.
Peru’s transfer pricing regulations
Peru’s transfer pricing regulations refer to the contractual and economic conditions which establish the cost, price, or rate for transactions between legally related parties for the transfer of services, goods, or loans, or other such exchanges.
The SUNAT maintains a transfer pricing control department dedicated to reviewing the validity of such processes, based on relevant legislation.
Peru’s transfer pricing regulations have been applicable since 2006, however, it became necessary to include far more extensive information about the organization overseeing a transfer following a legislative decree in 2016.
That modification was implemented in support of Peru’s attempt to join the Organization for Economic Cooperation and Development (OECD).
Why do these regulations exist?
Transfer pricing regulations are needed to avoid unfair practices in transactions between different entities within the same organization, in order to avoid skewed commercial competition in the market.
Where companies fail to present authorities with the required information related to transfer pricing in Peru, the consequences can include sizable financial penalties. According to Peru’s Tax Code, companies that fail to submit their declarations in good order are liable to pay a penalty equal to 0.6 percent of their net income.
Therefore, it is highly recommended to implement a comprehensive transfer pricing plan to guarantee its smooth management and to offer you adequate defense in the event of any challenge from authorities.
What is required for transfer pricing in Peru?
There are three key report types related to Peru’s transfer pricing regulations, namely a “Local Report,” a “Master Report,” and a “Country-by-Country Report,” with the size of the entity dictating which must be filed. Details of each are included below:
For companies whose income exceeds 2,300 tax units, a Local Report must be submitted annually. This report includes incomes, as well as deductible costs or expenses for tax purposes that must be well supported in case the tax authority requests to review them. In Peru, more than 2,500 companies are required to issue this type of report.
For companies whose income exceeds 20,000 tax units, a Master Report must be submitted annually. The Master Report allows the SUNAT to access information such as the structure of the group, the description of the group’s commercial activities, transfer pricing policies regarding intangibles, and operations in other countries, among others.
For multinational enterprise (MNE) groups whose income exceeds PEN 2700 million soles approx. (threshold not specified), which must be submitted annually. This report includes the taxes declared in each jurisdiction where the company has operations, income in each country, and distribution of income, among other data.
Understand Peru’s transfer pricing with expert support
With numerous legal and administrative considerations and significant financial repercussions for getting it wrong, it makes sense to seek out a locally-based partner who is experienced with Peru’s transfer pricing regulations to help you develop your transfer pricing plan.
If you are interested in understanding more about transfer pricing in Peru or need other tailored legal services to facilitate your operations in the South American country, engage with our multilingual team of legal experts at Biz Latin Hub.
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