Thinking about Tax Compliance in Peru

Dr David Bravo Sheen

Those of us who work as tax consultants (now called "fiscal intermediaries") have stated that prevention is the best tool to avoid or perhaps mitigate contingencies, since it allows rectifying, improving, or correcting the findings in a tax audit with the lowest possible tax cost. In effect, a diagnosis of the tax compliance of non-prescribed periods allows management to know if its practices in terms of revenue recognition, costs, expenses, depreciation, amortizations, determination of benefits for its workers and/or partners, comply or not with current tax provisions and/or with the criteria of the Administration or case law that interpret the tax laws.

In this context, we consider that the entry into force of Rule XVI in Peruvian Tax Code, known as the General Anti-elusive Clause (GAC) - "with and despite" its imperfections - adds an additional component to prevention, since even in compliance with tax regulations, certain economic transactions, structures or business models could now be observed under the prism of this provision, taking into account their substance rather than their form. To this must also be added the illegal - although for the time being in force - joint and several liability of the Board of Directors, as well as the alleged retroactivity of its application (to assumptions that have occurred since 2012).

It should be noted, however, that the GAC already sanctions the simulation without having to resort to the “Review Committee”2 (since it does not constitute tax avoidance) and it should also be noted that the exercise of certain behaviors included within the so-called "option economy" could now be qualified as aimed at obtaining an "artificial" or "improper" elimination or reduction of the taxable base.

Thus, it is not strange to conclude that the tax auditors will now "rethink Rule XVI" to analyze in which cases the taxpayer is simulating - in which case they will not know the effects of the commercial operations carried out without the need for any special procedure, demanding the supposedly omitted tax with the consequent fine and interest - and in which situations they will consider that fraud to the Law or other types of tax avoidance is being used, to submit them to the Review Committee. For its part, the taxpayer will have to demonstrate that its transactions are normal in the course of business (“business as usual”), that they do have substance, that they are not artificial or inappropriate for the purpose of the proposed operation or business. In effect, what for the taxpayer could be a difference of criteria or even a conceptual error, for the Tax Administration could be the materialization of an elusive conduct that, while the rule in question is not modified, could be the basis for joint and several liability imputation, if no mechanisms have been foreseen to avoid it.

In this sense, it is urgent that companies prepare themselves for the introduction and application of good practices in tax matters, defined as "all those that lead to the reduction of significant tax risks". This process not only involves the diagnosis that is generally required of auditing firms or legal studies to see if the taxes to which the company is affected have been correctly determined, but also - more importantly - the operations, businesses and structures that have the greatest commercial and tax relevance are reviewed and analyzed, verifying their substance and the form used to carry them out. In addition, policies are elaborated for the taking of decisions that could have tributary incidence. In short, the company must have a procedure for analyzing the tax risk and preventing the liability of its executives. Are Peruvian companies prepared for Tax Compliance?

 

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1 https://www.ebsabogados.com/en/

2 A special committee made up of tax administration officials who will analyze whether it is appropriate to apply the GAC in specific cases

If you need any guidance on this matter, do not hesitate to contact: This email address is being protected from spambots. You need JavaScript enabled to view it., This email address is being protected from spambots. You need JavaScript enabled to view it., or This email address is being protected from spambots. You need JavaScript enabled to view it., we will be at your disposal to support you in the implementation of best practices for the determination of your tax obligations and in the necessary internal procedures for making decisions that entail tax consequences.

 

XLNC ARTICLES ARCHIVE | Published on 24 May 2019

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