Analysis of the Case: Tested Related Party Services
A recent decision of the Peruvian Tax Court (Exp. No. 02374-4-2025) confirmed the criterion adopted by the SUNAT (Superintendencia Nacional de Aduanas y Administración Tributaria – National Superintendence of Customs and Tax Administration) regarding the “profit test” non-compliance in several intra-group service operations declared by an airline in liquidation. The operations observed included aircraft and turbine sublease contracts, administrative, logistics, maintenance, call center, and ramp services, among others, all performed with related parties abroad.
The controversy concerned the lack of sufficient documentation to support the costs and expenses incurred by the related suppliers nor the criteria for their allocation, as required by article 32-A, paragraph i) of the Income Tax Law.
Requirement of the Arm’s Length Principle
The Court emphasized that the deduction of costs or expenses for services received from related parties is subject to a double verification regarding:
- The effective rendering of the service, and
- A reasonable consideration under the Arm’s Length Principle.
Although contracts describing the activities and functions involved were submitted, there was no evidence of the breakdown of costs incurred by the suppliers, nor were the applied profit margins supported. In addition, the lack of documentation on the personnel involved in rendering services, such as hours worked, functions, and labor relationship, hindered validation of the reasonableness of the agreed value.
Importance of the Allocation Criteria
It was noted that many contracts stipulated that the pricing of the service would be based on the total costs incurred by the renderer plus a profit margin. Conversely, since these key elements were not accredited, the Tax Administration correctly concluded that neither the profit test nor the requirements for deducing the expense had been met. Therefore, the assessment of more than S/ 157 million to the tax base of the Income Tax for the fiscal year 2017 was appropriate.
Conclusions for Multinational Companies
This pronouncement of the Court reinforces the need for solid documentation supporting both the effective service rendering and the criteria for allocating costs among related companies. In order to avoid tax contingencies:
- Verify that each intra-group service provides real economic value.
- Document in detail the costs and margins applied.
- Check the allocation criteria are reasonable and verifiable.
Does Your Company Carry Out Related Party Transactions Abroad?
At TPC Group, we provide specialized Transfer Pricing advice, including validation and documentation of the profit test. Contact us to ensure compliance with your tax obligations and avoid contingencies before the SUNAT.
Source: Tax Court Resolution No. 02374-4-2025 – Peru.