The Peruvian Tax Court, through the Tax Court Resolution (RTF, by its Spanish acronym) No. 2998-1-2026 dated March 26, 2026, overturned a Transfer Pricing adjustment made by the National Superintendency of Customs and Tax Administration (SUNAT) regarding the sale of mineral concentrate to a related party. The reason was that SUNAT calculated the profitability indicator using financial information in the national currency rather than in the taxpayer’s functional currency. For Transfer Pricing specialists, the ruling confirms that the currency used in the analysis is a relevant factor in ensuring the comparability of transactions.
What was the tax court’s ruling?
The dispute arose from a sale of mineral concentrate to a related party. SUNAT applied the Transactional Net Margin Method (TNMM) and estimated the taxpayer’s profitability indicator based on segmented financial information expressed in the national currency.
The Tax Court concluded that this application of the TNMM resulted in distortions because it disregarded the taxpayer’s functional currency. The summary published in the March 2026 issue of the Tax Case Law Bulletin summarizes it as follows: “The appellant’s functional currency more accurately reflects the economic reality of the transactions.” Consequently, it revoked the assessment for transfer pricing adjustments.
Why does the functional currency matter in the TNMM?
The TNMM compares a profitability metric for the entity under analysis with that of comparable companies. Therefore, the result depends on whether the numerator and denominator of the metric reflect actual operating performance and not effects unrelated to operations.
International Accounting Standard (IAS) 21 defines the functional currency as the currency of the primary economic environment in which the entity operates. In an exporting mining company, sales prices, a significant portion of costs, and financing may be denominated in U.S. dollars.
When financial information is presented in a currency other than the functional currency, it is necessary to verify that the conversion procedures used do not introduce distortions in the profitability indicator. Inconsistent use of exchange rates for revenue, costs, and assets recorded on different dates can affect the comparability of transfer pricing analysis. Consequently, it is essential that the indicator reflect the profitability of the operations being analyzed and not distortions arising from the treatment of foreign exchange differences.
What happened to the additional tax?
The transfer pricing adjustment also supported the application of the Additional Tax for indirect distribution of income. Upon revoking the adjustment, the Tax Court nullified the assessment related to that tax.
This case demonstrates that a transfer pricing adjustment can have other tax consequences. When the technical basis for the adjustment is flawed, the assessments that depend on it may also be affected, underscoring the importance of having methodologically consistent documentation.
What does this mean for transfer pricing documentation?
The resolution comes at an opportune time. Through Superintendency Resolution No. 113-2026/SUNAT, the Peruvian entity extended the filing deadline for the Local File for fiscal year 2025 until the due dates corresponding to the October 2026 tax period. As a result, many taxpayers are currently finalizing their analyses.
For companies whose functional currency is the U.S. dollar or another foreign currency, it is essential to ensure that the profitability indicator and segmented financial information are consistent with that currency. Furthermore, this assessment must be documented in the comparability analysis, considering the criteria established in IAS 21 and the effects of any currency conversion. An explicit and technically substantiated justification helps strengthen the consistency of the analysis in the event of a review by the tax authority.
This criterion is not necessarily limited to the mining sector. It is equally relevant for agro-industrial exporters, hydrocarbon companies, and any entity whose operations are conducted primarily in a foreign currency, provided that this circumstance is decisive in establishing its functional currency and assessing the comparability of its financial results.
At TPC Group, in every transfer pricing analysis conducted under the TNMM, we evaluate the functional currency of the entity under review and the consistency of the segmented financial information used to construct the profitability indicator. Our goal is to support an arm’s-length result that reflects the economic reality of the operations and is backed by the necessary technical justification in the event of a review by the tax authorities.