In July 2012, through Legislative Decree No. 1121, the so-called Rule XVI or “General Anti-avoidance Rule” (GAR) was incorporated into the Tax Code, granting the SUNAT (Superintendencia Nacional de Aduanas y Administración Tributaria – National Superintendence of Customs and Tax Administration) new powers to “determine the true nature of the taxable event.”
In a nutshell, the SUNAT can reclassify operations when detecting that “artificial” or “improper” acts have been used to reduce the tax base, to totally or partially avoid the realization of the taxable event, or obtain balances or credits in favor, tax losses, or credits through acts with specific mandatory concurrent requirements to be supported by the Tax Administration.
1. What Is Tax Avoidance?
In Peruvian taxation, it is when taxpayers reduce or avoid their tax liabilities, affecting the true nature of the taxable event and generating a tax asset advantage without complying with the legal requirements.
2. What Must the SUNAT Demonstrate to Apply This Reclassification Power?
As mentioned in the introduction to this article, acts likely to be reclassified by the SUNAT must meet specific concurrent requirements that this must be able to support, which are as follows:
- The acts carried out, individually or jointly, must be “artificial or improper” to achieve the result obtained.
- Their use must result in legal or economic effects other than tax savings, which are similar to those obtained with usual or proper acts.
On this second point, there is undoubtedly tax saving (which may be legitimate), but there must also be a valid business reason behind the operation. The rule aims to distinguish between legitimate tax planning (economic choice) and artificial structures solely intended to avoid taxes.
3. Parameters for Applying the Anti-avoidance Rule
It should be noted that this power is not unlimited. For clear limits and guarantees, on May 6, 2019, Supreme Decree No. 145-2019-EF was published, establishing the ground and form parameters to apply Rule XVI.
Among the most relevant substantive parameters, the reclassification power must be exercised concerning the Constitution and fundamental rights, requiring sufficient support for both the facts and the normative interpretation.
Likewise, classifying acts as “artificial” or “improper” implies a reasonable margin of discretion to determine the content of these legal concepts in each specific case as long as it is not manifestly unreasonable.
Regarding the form parameters, the decree establishes that the application of the anti-avoidance rule is exclusively within the framework of the SUNAT’s definitive inspection procedure, where the inspection area must first obtain a favorable opinion from the Review Committee on whether or not there are sufficient elements to apply the general anti-avoidance rule. The committee can summon the taxpayer to argue and must issue a binding opinion within 30 working days from the taxpayer’s presentation. This procedural structure provides guarantees to the taxpayer against the application of the anti-avoidance rule.
4. The Reclassification Power in the Recent Jurisprudence of the Tax Court
According to jurisprudence, the SUNAT’s reclassification power has been the subject of significant rulings of the Tax Court aimed at clarifying its application.
RTF 6942-4-2024
A relevant case is RTF 6942-4-2024, which analyzed the reclassification of a capital premium capitalization operation. The controversy arose when the taxpayer agreed to receive a lower percentage in a capital premium capitalization than that which corresponded to his shareholding, thereby benefiting a related company.
The SUNAT (the Peruvian tax authority) determined that this corporate operation indeed disguised a free transfer of shares and applied Transfer Pricing rules to calculate the corresponding tax.
Otherwise, the company argued that the capitalization was valid under the General Companies Act and responded to contractual needs.
Conversely, the Tax Court confirmed the existence of relative simulation, validating the SUNAT’s position on the true nature of the transaction and the application of Transfer Pricing rules.
RTF 5822-1-2024
Case law has also clarified the relationship between the reclassification power and other tax rules.
In RTF 5822-1-2024, the appellant company argued that it was operating legitimately as a commission agent under its contract with its foreign affiliate, the risks being assumed by the latter. It argued that the SUNAT had exceeded its powers by reclassifying the transaction.
The SUNAT defended the reclassification, arguing that the company performed the functions of a distributor: It had ownership of the goods, controlled inventories, and assumed financial risks. It considered that the commission contract did not reflect the economic situation.
According to the Tax Court, the ruling mainly focused on the fact that the SUNAT only analyzed the functions but not the assets or risks of comparable companies in its Transfer Pricing analysis. As this technical analysis, which is the basis for supporting the tax adjustments, was incomplete, the Court considered that the objection was not duly grounded.
This approach strengthens the Rule XVI application as a tool against tax avoidance while establishing clear parameters for its implementation.
Consequences of Avoidance
- In this line, when cases of tax avoidance are detected, based on Legislative Decree No. 1121, the SUNAT can demand the tax debt or reduce the number of balances or credits in favor, tax losses, credits for taxes, or eliminate the tax advantage, without prejudice to the restitution of the amounts unduly returned.
- In addition, the Board of Directors and legal representatives may be jointly and severally liable for tax obligations when, without having a formal appointment, they exercise a power of management, direction, or decisive influence over the tax debtor.
Due to the challenges posed by Rule XVI, which empowers the SUNAT to reclassify elusive operations, specialized advice is key. Our tax expert team at VAG Global can exhaustively analyze your transactions, identify risks, and design customized strategies to optimize your tax planning and strengthen your internal controls. It will enable you to minimize observations and sanctions from the authorities. Let us be your trusted ally in tax compliance.