The Profit Test in the Peruvian Regulations
The incorporation of paragraph i) to article 32°-A of the Income Tax Law establishes the Profit Test as a necessary condition for deducting costs or expenses related to the services received.
This test is met when the service rendered provides economic or commercial value for the service recipient, improving or maintaining its commercial position when independent parties satisfy the need for the service by performing it themselves or through a third party.
The regulations also state that all the necessary documentation and information must be provided to evidence the effective rendering of the service, its nature, its real need, and the costs and expenses incurred by the renderer, among others.
Nevertheless, before an eventual audit process by the Tax Administration, what is the level of specific information to be filed to support the reliability of the services received and comply with the Profit Test? The inclusion of this regulation has left many controversial gaps that could confuse and jeopardize the legal stability of the taxpayer.
TCR NO. 07629-9-2023
Notwithstanding the above, the recently published Tax Court Resolutions (TCR) clarify further the documentation and/or information that would be sufficient or not to prove the reliability of a service. The TCR No. 07629-9-2023, published on September 13, 2023, is an example of this, in which one of the controversial points is the documentary sufficiency in the deduction of costs and/or expenses associated with services received.
Controversial Points: Deductibility of Costs and Expenses
The TCR states that the filing of payment vouchers is not enough to prove the reliability of the transactions reported in such documents, being mandatory for the Company to have available additional documentation that sufficiently and reasonably supports the transactions are real or existing, i.e., that they actually took place; in addition to the contract and its addenda to only represent the instruction or mandate to obtain a service but does not prove its performance; likewise, it only evidences an agreement in principal for the acquisition of service, but not its performance.
On the other hand, regarding the aforementioned purchase orders and internal documents, although these refer to the services that the supplier would have rendered to the Company, these are documents issued by the latter, which, by themselves do not prove the reliability of the transactions observed by the Tax Administration; likewise, the bank account statements of the renderer and the e-mails of the Company requesting such documents only prove the latter paid but not the effective rendering of the services by the former.
In addition to the above, the estimates and quotations of the service are only recorded but insufficient, given that there is no additional evidence recorded to indicate the performance thereof validly.
Conclusion of the Tax Court on the Controversy Points
The Tax Court notes that the Company did not comply with providing evidence that would reasonably and sufficiently accredit or support the reliability of the transactions observed despite being responsible for the burden of proof. Indeed, there is no evidence that the appellant had attached documents such as those confirming the transfer and delivery of the equipment and goods leased, the appraisal form for the service performed approved by the supervisor responsible for the service and authorized by the project management, which should be attached to the payment vouchers, reports or other documents related to the maintenance of the equipment, the insurance policies contracted in the terms indicated in the contract presented by the appellant regarding such equipment, among other suitable documentation to prove the reliability of the transactions under analysis.
Finally, even though the aforementioned CTR does not refer to an audit process in Transfer Pricing specifically, it warns us about the information the Tax Administration would consider to determine the deductibility or not of a particular expense, thus preventing tax disputes.
