Tax Disputes Guide in Peru

The Tax Administration (TA) has discretion in conducting tax audits. However, certain circumstances are associated with a higher likelihood of audit, such as reporting very high revenues or having been subject to prior audits with adverse findings. Although no procedures can properly limit or exclude a tax audit, these factors may increase audit risk.

Additionally, the TA maintains a Tax Compliance Rating System, pursuant to which taxpayers with lower ratings may be classified as higher risk and, consequently, subject to increased likelihood of audit.

The statute of limitations generally provides a 5-year period, under normal circumstances, to audit any given fiscal period. This period can be extended or even reset depending on whether certain events occur, such as a partial payment of the debt, an amendment of a tax return or a notification from the TA.

The powers related to investigations are extensive, as the TA is authorised to request documentation from any individual or entity concerning a particular taxpayer.

For debt collection, the TA has the authority to seize a wide range of assets (bank accounts, real estate, accounts receivable). It even has the authority to intervene in a company’s daily operations in order to guarantee a set amount of funds in order to pay tax debts and fines.

The primary right of taxpayers during an audit is due process. This includes being informed clearly of the charges against them and being given adequate time to prepare their defence and gather evidence. Additionally, it requires the TA to reach a conclusion that takes into account the taxpayer’s counterarguments and the evidence provided.

The TA has issued an institutional opinion affirming that commercial, professional or any other form of confidentiality does not constitute valid grounds to refuse the disclosure of information required by the tax authority (“Informe 156-2004-SUNAT”).

Any audit culminates with a liquidation of the tax owed and not yet paid according to the TA. The main tax penalties include:

• fines based on the unpaid tax (50%)
• interest on both the tax owed and on fines
• criminal charges may be imposed in addition, although this requires an element of fraud.

Both administrative and criminal penalties can be contested; however, neither is subject to negotiation. There is an incentive system that allows for steep reductions in fines if the omitted tax is paid before a notification from the TA. Criminal prosecution for tax offences is not admissible if the taxpayer has paid the taxes owed in full.

Tax litigation consists of two phases, administrative and judicial.

The administrative phase comprises two stages:

• the first before the TA, with a statutory deadline of 9 months for resolution
• the second before the Tax Court, an administrative body with the authority to overrule the TA, with a statutory deadline of 12 months for resolution.

In practice, the administrative phase lasts 2-4 years.

The judicial phase comprises three stages:

• the first before a Specialised Court
• the second before an Appeals Court
• the third before the Supreme Court.

The judicial phase generally lasts 3-5 years.

Under Peruvian law, a tax assessment or fine imposed by the Tax Administration may only be subject to enforced collection once it has been confirmed by the Tax Court, which constitutes the second stage of the administrative litigation process. However, interest continues to accrue until the debt is either paid or annulled.

There are no alternative dispute resolution mechanisms available. However, in very limited circumstances, taxpayers who have entered into tax stability agreements may initiate arbitration proceedings against the State to determine whether or not the scope of the agreed stability provisions has been respected.

In the administrative phase, the Tax Court is highly specialised in tax matters and related accounting issues.

In the judicial phase, each stage of the process – first instance, appeals courts and the Supreme Court – includes specialised chambers for tax litigation.

However, it is important to note that most tax controversies are ultimately resolved by the Supreme Court, whose justices serve relatively short terms.

• How the statute of limitations for debt collection applies when a government authority has significantly exceeded the statutory deadline to resolve a tax dispute.
• Deductibility of losses incurred from financial derivatives: this requires proving that such instruments were used to hedge business risks, rather than for speculative purposes.
• Demonstrating the reality of transactions that generate expenses – including intercompany services – or significant fixed asset acquisitions. This is particularly concerning in companies engaged in extractive industries, infrastructure and project-based activities, where such expenditures and assets are both substantial and complex in nature.

The most crucial factor is having a strong team equipped to compile and document business activities related to tax obligations and deductions, especially expenses.