Peru tax authority guidance addresses deductibility of interest paid to non-residents

By Elisa Kaminsky, transfer pricing senior associate, BaseFirma, Miami

On September 20, the Peruvian tax authority issued guidance N.° 130-2019-SUNAT/7T0000 where it clarified the treatment for interest expenses on foreign debt.

Interest expense on foreign debt

Taxpayers had uncertainty on the deductibility treatment on interest accrued on foreign debt when the expense is not paid, but only accrued during the fiscal year.

To better explain this, interest expense in general is deductible when the debt is incurred to acquire goods or services related to obtaining or producing income taxed in Peru or is necessary to maintain its business activities (i.e. causation rules).

In the case of debt with related parties, interest expense is not deductible if the transaction does not comply with thin capitalization rules (debt-to-equity ratio of 3.1). In that sense, only the portion of the interest expense that meets said rules is considered deductible.

Question on deductibility

SUNAT provides that interest on foreign or related party loans may be deducted as an expense in the taxable year to which they correspond if paid or credited within the period.

Nevertheless, if said expenses are not deducted in the corresponding year, shall be deductible in the year in which they are actually paid, even if they are provisioned in a previous year.

The takeaway

The clarification provided by SUNAT is considered an anti-avoidance rule, being applicable to all the expenses expressly connected with business activities and previously mentioned in this article.

–Elisa Kaminsky is a transfer pricing senior associate, BaseFirma, Miami