Problems relating to Trade and Investment on Peru
14. Taxation Systems |
|||
Issue |
Issue details |
Requests |
Reference |
| (1) Heavier Taxes on Mining | - Investors' desire to develop new mine is debilitated by introduction of the mine royalty, mine special tax, and mine fees. | - It is requested that GOP repeals the mining royalty and other new taxes or maintain the minimum tax rates. | - Mining Royalty Act |
| (Action) - Effective June 2004, GOP imposes the mining royalty at three levels in accordance with the total annual concentrate value, less than 60 million dollars at 1%, 60 million to 120 million at 2% and over 120 million at 3%, under the Mining Royalty Act (Ley de Regalia Minera). - On 25 August 2011, Prime Minister Lerner in his Policy Speech under the Humala Administration announced: "The Administration has agreed with the mining enterprises payment of the Surplus Profit Tax of 3 billion Soles per annum, while tax revenue of 15 billion Soles is expected in the forthcoming 5-years. The 2012 Government Budget is USD95.5 billion." - In September, 2011, GOP got the law on mining royalty amended, introducing mining special tax and mining special levy. The increased taxes will be deployed for development of the local community, it is said. |
|||
| (Improvement) - Small-scale mining producers (SSMPs) are excluded from the scope of royalty tax, with the exception of the SSMPs that are affiliates of larger enterprises. Mining right holders calculate every month the purified, refined, or smelted ores and pay royalty within the prescribed period. GOP will then distribute royalty on the state, county, town and national university where the mine is located. The use of royalty must be limited only to the local development. GOP has taken measures to avoid double taxation of royalty by applying the levy rate expressly stated in the Agreement concluded with GOP, where GOP concludes the Agreement for reasons of its privatization. As to the case where privatization program is already under way, the levy rate as determined by the Investment Promotion Bureau and expressly stated in the terms of tender will be applied. Governing Law: Act 28258 "Mining Royalty Act" (promulgated on 24 June 2004) and its Amendment Law No. 28323 (of 6 August 2004), and its implementing regulation, Supreme Decree No. 157-2004-EF (promulgated on 15 November 2004), Supreme Decree No. 018-2005-EF (promulgated on 29 January 2005), Ministry of Economy and Finance No. 063-2005-EF/15 (promulgated on 8 February 2005), and National Superintendency of Tax Administration Decision No. 035-2005/SUNAT (promulgated on 15 February 2005). |
|||
| (2) Nebulous Implementation of Taxation System | - We ask the GOP to ensure more transparency in tax system and practice by identifying the frequency of tax investigation and the fiscal year subject to investigation. - MFS is under tax scrutiny by SUNAT (Superintendencia Nacional de Administracion Tributaria=National Superintendency of Tax Administration; Peru) that envisages increase in tax levy in the circumstances where legislative changes frequently occur, under the nebulous tax scheme. Despite filing of the revised tax return under the exercise of positive, preventive due diligence, GOP levies additional taxes in the end. |
- It is requested that Ministries and Agencies speed up their Administrative Service. - It is requested that GOP: -- clearly identifies the frequency of tax investigation, -- expressly identifies the accounting year covered under the tax investigation. |
- Peru Tax Systems |
| (3) Vexatiously Complex Detraccion Tax Payment System | - The balancing taxation system called "Sistema de Detracciones" has increased the clerical burden, making it more complex. - The Withholding Tax System "Detraccion" (whereby a part of IGV tax is paid on behalf of Seller), or "Retencion" (whereby certain enterprises designated by the National Taxation Bureau pay a part of IGV on behalf of Seller on transactions with 700 soles or more) complicates the clerical works of taxpayers. |
- It is requested that GOP expedites the administrative service. - It is requested that GOP repeals these Withholding Tax measures related to IGV in order to speed up clerical works. |
|
| (4) Excessively Heavy Tax Burden | - The substantive tax rate has exceeded easily 40% in aggregate, including corporate income tax / dividend tax (32.87% in total). In addition to mining royalty (about 6% on sales), worker dividend (8% before tax), and since 2013, the levy of contribution scheme of 0.36% has begun to OSINERGMIN (State Energy And Mines Investment Regulator=Organismo Supervisor de la Inversion en Energia y Mineria) and to OEFA (The Agency for Environmental Assessment and Enforcement=Organismo de Evaluacion y Fiscalizacion Ambiental). These high taxes and contributions curb new investments into Peru. | - It is requested that GOP avoids these excessive tax burdens in light of retaining competitive strength against other countries. | |
| (Improvement) - Effective 1 January 2015, Amended Tax Law, concerning reduction in personal / corporate income tax rate, and increase in dividend tax rate has come into force, so that the going corporate income tax of 30% will be reduced to 28% January 2015-2016, 27% 2017-2018, and 26% after 2019. The going dividend tax rate of 4.1% will be raised to: 6.8% 2015-2016, 8%, and 9.3% after 2019. |
|||
| (5) Excessively Denied Deductions | - The Tax Collector of Superintendencia Nacional de Administracion Tributaria (SUNAT) has inflated the tax amount by numerous denials of deductions from the taxable income. For example, the denied deductions include loss from hedge in foreign exchange, regional assistance fees to the local area surrounding the mines, ocean-marine transportation cost of refined minerals, and the cost of filing complaint. The appellate court proceedings are being prolonged, some stretching over the 9-year period, accompanied by the inflated interest for account on arrears. In Peru, over 20,000 court cases are pending on tax disputes alone. - GOP denies deductions of expenses incurred outside the accounting term, inconveniencing enterprises. - Taxation Authority (TA) denies Tax Deductions for Ocean Freight and Ocean Marine Insurance incurred on export of Mineral Concentrate. - TA would not allow deduction from taxable amount of the loss accrued from forward hedging of goods based on genuine demand. TA has approved its deductions by amendment of tax laws since 2007, excluding, however, the past loss incurred prior to 2007. |
- It is requested that GOP: -- harmonises the rules for deductible account items customarily approved to avoid or minimise otherwise unnecessary court proceedings, and -- expedites the procedure. - It is requested that GOP allows a grace period for expenses slightly behind the accounting term, as the denial of the same is too stringent. - It is requested that GOP allows deductions for Ocean Freight and Ocean Marine Insurance on export. - It is requested that GOP allows deductions of the loss accrued from forward hedging of goods based on genuine demand. |
- Corporate Income Tax Act (enforced in January 2007) Articulo 5-A. |
| (6) Delays in Tax Administration Procedures | - Occasionally we encounter the slow procedures of the Tax Administration. - It takes a long time to get tax deductions on costs incurred by enterprises for construction of infrastructure for the local residents, whereas such cost should be for the account of GOP. - The taxation procedures move but at a snail's pace. It takes inordinate time before GOP's notification of decision reaches the claimant against objection on taxation issues. Moreover, the claimant incurs vast amount of interest arrears (at the rate of 1.2% per month). |
- It is requested that GOP expedites its administrative services. - It is requested that GOP streamlines and expedites the procedures on tax deduction for costs for the local residents. - It is requested that GOP streamlines and expedites the procedures. |
|
| (7) Inappropriate Implementation of the Tax Scheme Amendment | - "Reduction in corporate income tax" and "raise in withholding tax on dividend" have been implemented in Peru. However, in the case of MFS, bound by the existing "Tax Stability Agreement", Peruvian taxation authority has raised dividend tax, while refusing to reduce corporate income tax, so that MFS profitability on investment has aggravated. | - It is requested that GOP implements its tax scheme in such a way that does not impair the benefits under the existing agreement Peruvian taxation scheme | - Peruvian Taxation Scheme - Promotion of Foreign Investment Law |
| (8) Unratified Tax Treaty | - Ratification of tax treaty between Peru and Japan will not only enable avoidance of double taxation but also bilateral negotiation between the taxation authorities. | - It is requested that GOJ/GOP ratify the tax treaty. | - Peruvian Taxation Scheme - OECD Guideline |
| (Action) - On 18 September 2014, at Second Meeting of the Sub-Committee on Improvement of the Business Environment Agreement between Japan-Peru for an Economic Partnership, in response to the Japanese enterprises request for conclusion of Japan-Peru tax treaty, GOP side responded by stating it wished to consider positively toward opening the tax treaty negotiation. (JETRO World Business News, dated 3 October 2014) - GOP has ratified and enforced tax treaty with Chile, Canada, Andean Community (Comunidad Andina), Brazil, Mexico, ROK, Switzerland, and Portugal. |
|||
<<BACK |