The Guidelines set by the Organization for Economic Co-operation and Development (OECD) serve as an interpretation source for the Peruvian transfer pricing regulations. Currently, they are incorporated within the Income Tax Law.
Arm’s Length Principle
The arm’s length principle in Peru requires that transactions – specifically those with related parties, with entities in low or no-tax or non-cooperative jurisdictions, and with taxpayers under preferential tax regimes – be priced as if they were between independent entities acting under normal market conditions.
Related Party Definition
In Peru, parties are considered to be related when there is a significant degree of control or dependence between them, for tax purposes, which could include shareholding connections, common management teams, or financial dependence. Significant control or influence includes circumstances involving, through shareholdings, ownership, or arrangement, entities that directly or indirectly own a significant amount of capital in a recipient entity, or have the ability to influence that entity’s decisions.
Related party definitions for Peru’s income tax purposes help to ensure that taxable income is attributed to the correct entity or person regarding income from transactions such as interest, dividends, royalties, and gains, to prevent the shifting of profits that are not real.
Transfer Pricing Methods
The methods that can be used to determine the arm’s length price in Peru are provisioned in Article 9 of the Regulation, as follows:
- Comparable Uncontrolled Price Method (CUP)
- Resale Price Method (RPM)
- Cost Plus Method (CPM)
- Transactional Net Margin Method (TNMM)
- Profit Split Method (PSM)
The selection of the method is based on the most appropriate principle. However, in certain transactions the law states a preference for a certain method; for instance, in the case of exports and imports of certain goods with a known quotation in the international, local, or destination markets, transactions are advised to be assessed under the CUP method.
Comparability Analysis
In Peru, the comparability analysis in transfer pricing is in line with the guidelines in Chapter III of the OECD Transfer Pricing Guidelines. To determine comparable transactions, the law provides a preference for the local comparables, and when not possible taxpayers can use information from foreign companies while making all the necessary adjustments to reflect the market differences. Also, the tax authority – the National Superintendence of Customs and Tax Administration of Peru (SUNAT) is entitled to use secret comparables.
Peru’s Income Tax Regulation states that when determining whether the price or profit from a transaction between related parties is at arm’s length, a range of values—called the interquartile range—should be used if there are two or more comparable transactions. This helps identify what unrelated parties would have agreed to under similar conditions. The interquartile method and median are applied as set out in Article 115. To ensure fair comparison, adjustments may be made to account for differences in payment terms, transaction amounts, marketing costs, intermediation fees, transportation and insurance, and the physical nature of goods or services involved.
Documentation Requirements
Transfer pricing documentation requirements in Peru are based on the three-tiered approach set forth by the OECD. This requires multinational groups to:
- Master File;
- Local File, and
- Country-by-Country (CbC) report.
The Master File provides an overview of the multinational group’s global operations. It includes information on how income and taxes are distributed across countries, as well as the business activities of each group company. The information provided includes the group’s organizational structure, descriptions of its main business lines, its policy on managing intangibles, details of financial activities, and the financial and tax positions of group members.
The Local File must be prepared by Peruvian taxpayers with annual revenues exceeding 2,300 UITs and meeting specific criteria. It contains detailed information on local transactions that affect taxable income or deductible expenses. SUNAT may also request disclosure of transactions that involve exempt or non-taxable income, or costs that are not deductible. The purpose of the Local File is to support that the prices used in related-party transactions are consistent with the arm’s length principle.
Country by Country Reporting
The CbC report is a requirement for multinational groups that had consolidated revenue of at least 2.7 billion soles for the preceding year must submit a report. In this case, the responsibility lies with the Peruvian-resident Ultimate Parent Entity (UPE) or the member of the Peruvian group, if the UPE is not a Peruvian entity, and if one of the following conditions:
- The UPE is not required to file a constituency CbC report in its country of residence,
- Peru has not got a current agreement to share CbC reports with the UPE’s country of residence, or,
- Peru has a current agreement to share, but this agreement is being not upheld (a systemic violation).
The report can be submitted by a Peruvian entity if that entity has been officially confirmed as the reporting entity for the multinational group.
Advance Pricing Agreements (APA) and Mutual Agreement Program (MAP)
An Advance Pricing Arrangement (APA) is an agreement between a taxpayer and the tax authority that sets out how transfer pricing will be done for future cross-border transactions. APAs help avoid disputes and double taxation.
There are three types of APAs:
- Unilateral APA: between the taxpayer and the SUNAT only.
- Bilateral APA: involves SUNAT and one other country’s tax authority.
- Multilateral APA: involves SUNAT and two or more other countries tax authorities.
A bilateral APA can also cover previous tax years if the facts and conditions are the same as those in the agreed period, subject to approval. If significant changes are affecting the agreement, the taxpayer may request a modification. SUNAT must approve any changes, but it also has the authority to cancel the APA instead. Any approved modification or cancellation takes effect from the year the request was submitted.
Mutual Agreement Program (MAP)
Peru’s MAP enables taxpayers to resolve cross-border tax treaty disputes—especially in transfer pricing—through its competent authority at SUNAT’s International Taxation unit. Nearly all Peruvian tax treaties include a MAP clause based on Article 25 of the OECD Model, allowing for analysis and negotiation of treaty application issues. Cases are typically handled within 12–24 months, and SUNAT’s team operates independently of audits, following formal guidelines set out in a 2023 MAP manual.
Approach to Transfer Pricing Audits
Penalties
Taxpayers who do not submit the necessary transfer pricing documentation (e.g. local file, master file, CbC report) may be penalized at a rate of 0.6% of net income, with fines starting at 10% of a UIT and with the potential of being 25 UITs maximum. If SUNAT makes primary adjustments as a result of an audit, a penalty of 50% of the tax increase may be imposed.
Taxation at a Glance
In Peru, both corporate and personal income taxes are applied at the national level. Additionally, companies are subject to an asset tax, which acts as a minimum tax; any excess paid over the actual income tax liability can be refunded. The main legal sources of tax law include the Constitution, the Tax Code, the Income Tax Law, tax regulations, administrative rulings, international treaties, and binding case law from the Tax Court or Supreme Court.
The currency of Peru is the Peruvian sol. However, it is common in Peru to use the tax unit UIT, which is a value in soles adjusted each year to determine taxes, infractions, fines, and other tax matters. UITs are expressed in quantities (e.g., 5 UITs) or percentages (e.g., 20 percent UIT).
The official name of the Peruvian tax authority is the National Superintendence of Customs and Tax Administration.
The table below provides a summary of the main taxation rates related to businesses:
Tax Type | Tax Rate |
Corporate Tax | 29.5% |
VAT | 18% |
Withholding tax on dividends to non-residents | 5% |
Withholding tax on interest to non-residents | 4.99/30% |
Withholding tax on royalties to non-residents | 30% |
Our firm provides our clients with comprehensive assistance in their transfer pricing needs globally. To contact a team member, please click here.
