Essential Guide for the Transfer Pricing Defense File

January 31, 2024

Background and Current Legislation on Transfer Pricing

Since 2006, the Transfer Pricing regime has been in force in Peru, becoming relevant with the amendments introduced in Legislative Decree No. 1312, published in December 2016, to adapt the legislation to the international standards established by the Organization for Economic Cooperation and Development (OECD). Hence, the SUNAT (Superintendencia Nacional de Aduanas y de Administración Tributaria – National Superintendence of Customs and Tax Administration) has been working to increase its available resources to carry out more inspections per year.

Supporting Documentation of Taxpayers

According to numeral 7 of Article 87 of the Tax Code, taxpayers must keep the documentation and information related to the transactions within the Transfer Pricing scope, becoming more relevant for the preparation of the Defense File, which consists of a detailed file supporting the information of the amounts reported, methodology applied, calculations, among other requirements related to the Transfer Pricing obligations.

Several transactions can be carried out among related parties, which establishes that there is no standard documentary information to prepare a defense file but that all documentation supporting intercompany transactions must be preserved under their nature.

Importance of the Defense File

It enables taxpayers to prevent disputes in audit processes by evidencing their related party transactions to justify the selected method, the selection of comparables, and other aspects of the results of the Transfer Pricing analysis, minimizing the risk of tax adjustments and litigation.

Additionally, the defense file is relevant in internal audits, facilitating the review and validation of their transactions for more efficient management of financial and human resources.

Recommendations for the Preparation of the Defense File

  • Detailed documentation: Comprehensive recording of related party transactions.
  • Comparative analysis: Performing a comparative analysis of changes in the results of the Transfer Pricing analysis, identifying modifications in the criteria for selecting comparables, as well as any deviation in the methodology applied or adjustments applied thereto.
  • Monitoring: Keep the defense file up to date, considering possible changes in legislation.
  • Collaboration between the areas involved: Encouraging the collaboration of the areas involved in the accounting, legal, and tax aspects of intercompany transactions to maintain adequate documentation and supporting information for each transaction.

Risky Operations in Audit Processes

Considering the rulings of the tax court, taxpayers often have difficulty providing documentation supporting transactions related to intangibles, such as royalties for the use of trademarks. Regarding this particular transaction, it is advisable to have the following information:

  • Contract and addenda
  • Accounting record
  • Proof of payment
  • Evidence of the use of the trademark in the business activity
  • Certification of the Trademark Registration
  • Trademark Usage Manual
  • Economic Analysis to Determine the Royalty Payment
  • DEMPE Analysis
  • Trademark Appraisal Report
  • Determination of the economic value of use of the trademark
  • Any other documentation or information supporting the effective use of the trademark, the creation of value, and the reasonableness of the agreed consideration.

Additionally, due to the increase in audits of the obligation of the Profit Test, the support of the expenses for services received from related parties must be available, and it is advisable to keep the following information:

  • Proof
  • Vouchers
  • Accounting record
  • Contracts
  • Reports filed as part of the service
  • Coordination emails
  • Meeting Minutes
  • Curriculum Vitae of the personnel involved in the rendering of the service
  • Economic analysis of the agreed consideration
  • Distribution of costs and expenses incurred by the service provider
  • Any other documentation or information supporting the effective provision of the service, generation of value, and reasonableness of the agreed consideration.

Conclusion on the Sifnificance of the Defense File

Finally, the defense file is crucial for regulatory compliance and preventing tax disputes, being necessary to prepare it before any tax audit process to ensure a solid position before the Tax Administrations.