The Pro-Rata of the Vat Tax Credit

The Tax Credit

The VAT payable is determined by subtracting the gross tax, which consists of the VAT collected on sales transactions minus the tax credit. On the other hand, the tax credit is the VAT paid for “the acquisition of goods, services, and construction contracts or that paid on the importation of the good or the use of services rendered by non-domiciled persons in the country” (Article 18 of the VAT Law) related to taxable transactions. 

Pro-Rata of the Tax Credit

Given that the right to the tax credit only applies to taxable transactions, taxpayers performing both taxable and non-taxable transactions will have difficulties in the VAT determination. In this regard, paragraph 6 of Article 6 of the VAT Law Regulations establishes the procedure applicable to these situations. 

First, it must be accounted for separately. Conversely, there are cases where the taxable part of the transaction cannot be distinguished. In those cases, paragraph 6.2 of Article 6 of the VAT Law Regulations regulates the pro-rata procedure, requiring the following: 

1. To determine the amount of the taxable transactions with the tax and exports of the last twelve months, including the month to which the credit corresponds. 
2. To determine the total of the transactions of the same period, considering those taxable and non-taxable, including exports. 
3. The amount obtained in a) shall be divided by the amount obtained in b), and the result shall be multiplied by one hundred (100).  
4. The percentage shall be applied to the tax levied on the acquisition of goods, services, construction contracts, and imports entitling to the tax credit, thus resulting in the tax credit for the month. 

This paragraph also indicates that the amounts for import operations of goods and use of services are not included in calculating the pro-rata. 

Report No. 000016-2024-SUNAT/7T0000

Regarding this issue, Report No. 000016-2024-SUNAT/7T0000, published on March 18, 2024, analyzed and resolved the queries resulting from the tax credit pro-rata application in the use of services rendered by non-domiciled taxpayers in the country. In this regard, the queries were formulated as follows:  

1. Would the use of services in the country be excluded from the calculation of the percentage of the tax credit pro-rata regulated in paragraphs a), b), and c) of the referred section? 
2. Would the tax paid for the use of services be excluded from the amount of the tax to which the percentage of the tax credit pro rata is applicable, which is regulated in paragraph d) of the referred section? 

The Administration has started its analysis considering the regulation that expressly excludes the amounts of the import transactions of goods and use of services rendered by non-domiciliaries in the country from the pro-rata calculation.  

Conversely, it also analyzes whether the use of the services rendered by non-domiciliaries is included in paragraph d) of section 6.2 to apply the percentage resulting from the formula to the amount of the tax levied on the acquisition of services for taxable and non-taxable transactions. 

In this regard, the restriction applies to the pro-rata calculation. Conversely, it does not mean that the calculated coefficient cannot be applied to those imports or the use of services intended for taxable and non-taxable transactions.  

Therefore, it concluded as follows: 

• The use of services rendered by non-domiciled taxpayers in the country is excluded from the calculation of the percentage of the tax credit pro-rata regulated in paragraphs a), b), and c) of section 6.2 of paragraph 6 of Article 6 of the VAT Law Regulations. 
• The VAT paid for such transaction is not excluded from the amount of the tax to which the percentage of the tax credit pro-rata referred to in paragraph d) of the aforementioned section 6.2. is applicable, and therefore, 100% thereof cannot be employed as a tax credit if such transaction is intended for taxable and non-taxable transactions. 

Conclusions

The Administration has clarified the VAT pro-rata calculation. It stated that the exclusion of imports and the use of services are only applicable to the VAT pro-rata calculation. Therefore, in cases where a company carries out a transaction where it imports or uses a service rendered by a non-domiciled person in the country for taxable and non-taxable transactions, it must apply the calculated coefficient of the pro-rata calculation to the tax paid to determine the applicable tax credit. 

Indeed, the use of services rendered by a non-domiciled person in the country is an expense, which is expressly defined as a taxable transaction by Article 18 of the VAT Law. The second conclusion of the above-mentioned report refers to the cases in which such a transaction is intended for a non-taxable transaction. Conversely, the following question arises: What type of transaction is the use of services unrelated to a taxable transaction in the country? 

Given these situations, accounting and tax advice is essential for the correct fulfillment of taxpayers’ tax obligations. At VAG GLOBAL, we have tax lawyers assisting and supporting you in your queries. 

Source: SUNAT