Commencing May 7, 2019, the Peruvian Tax Administration is entitled to apply the General Anti-Avoidance Rule to transactions and structures deemed as improper or artificial which only purpose is to reduce the taxpayer's burden.

The Peruvian General Anti-Avoidance Rule (GAAR) was first introduced in 2012, although the possibility for the Tax Administration (SUNAT) to apply it to situations produced after its implementation was restricted until further regulations on the format and substantive parameters for its application were enacted.

On May 6, Supreme Decree No 145-2019 was published. This decree entered into force on May 7, 2019, and it establishes the formal and substantive parameters for SUNAT to apply the GAAR to those commercial transactions considered as improper or artificial and which only purpose is to reduce the taxpayers' burden.

The principal features introduced by the aforementioned decree are the following:

Substantive Parameters:

The new regulation establishes certain illustrative criteria that SUNAT must take into account when determining the existence of tax elusive transactions:

  • The way in which the contracts and operations were carried out and enforced.
  • The form and substance of the acts, situations or economic relations.
  • The time of execution of the acts, situations or economic relations.
  • The result achieved under the specific regulations of the analyzed tax, as if the General Anti-Elusive Rule would not apply.
  • The changes in the taxpayer´s legal, economic, or financial position that result or may reasonably result from the subscription or execution of the assessed acts, situations or economic relations.

According to the decree, certain circumstances have been listed as examples in which SUNAT must apply the aforementioned criteria. We consider that these circumstances are quite vague and faint, which may lead to possible arbitrary acts from the Tax Administration, and may increase tax litigation scenarios. Among these circumstances, we can find the following:

  • Corporate restructurings or reorganizations with the appearance of minor economic substance.
  • Performance of similar or equivalent activities to the ones normally performed through corporate structures, using non-corporate structures instead.
  • Subscription of contracts or performance of operations with parties located in non-cooperative territories, or tax-free/low taxation countries, or subject to a preferential tax regime.
  • Zero cost/low cost transactions, or structures that minimize or cancel the cost and nontaxable incomes of the parties involved.
  • Commercial or business transactions in which the benefits obtained have no reasonable relation with the risks assumed or lack of any economic rationale.

Tax Mitigation

On a positive note, the concept of "Tax Mitigation" has been defined and clearly excluded from the scope of Rule XVI. This has confirmed and validated the taxpayers' right to legitimately choose the less costly tax alternatives openly provided by the applicable tax laws.

Joint Liability Of The Board Members

Board members will face joint liability for the acts, situations or economic relations subject to the application of the GAAR, which arise from tax planning strategies put forth by the CEO or CFO for their approval.

However, joint liability will not apply to board members who participate from the session in which such acts are discussed and approved, but clearly express their disagreement in that respect. The disagreement must be recorded on the board meeting minutes or a notarized letter.

Formal Parameters

Formal parameters regulate SUNAT's officials and the Review Committee's actions and procedures when evaluating the application of the GAAR, which can only be applied in a definitive audit procedure.

When the Review Committee considers that the GAAR applies to a certain case, it is mandatory for the Tax Administration to summon the taxpayer and grant him at least a 10-day term to attend for presenting contradictory arguments. The document containing the Review Committee´s decision to apply the GAAR may not be appealed.

Dissemination Of Elusive Cases On The SUNAT´S Website

On its official website, SUNAT will publish the general characteristics of cases in which the GAAR was applied. Likewise, further situations and considerations regarding the GAAR will be published on a progressive manner.

Outstanding actions

Despite the aforementioned regulations, the Peruvian Congress may still pass the bill, which establishes that the GAAR is valid only for those acts, situations or economic relations occurring from May 7, 2019 onwards; among other modifications such as the ones referred to the elimination of the board's joint liability. We hope this bill is passed promptly.