Transfer Pricing Significance
The importance of the Transfer Pricing analysis lies in avoiding the transfer of profits from one country to another with a lower tax regime to protect the tax collection of a country. Hence, its relationship with importance of verifying whether the prices agreed in intercompany transactions correspond to common market values to identify this type of tax evasion, usually in large economic groups.
The most complex transactions to analyze for income purposes are those carried out by non-domiciled companies, given that the consolidation of commercial relations among several countries is really common in the current globalized world. Thus, there are situations in which a person or company not only performs business activities in its own country but also abroad. Before this, many people may be wondering how non-domiciled persons are taxed, specifically in the Peruvian case.
Taxation of Non-Domiciled: A Necessary Analysis
There are differences between domiciled and non-domiciled taxpayers. The domiciled entities must tax their income for the profits generated by transactions in/out of the country (Peruvian and foreign source income); the non-domiciled entities will only be taxed for the profits generated by transactions carried out in the country (Peruvian source income), according to the provisions of Article 7 of the Income Tax Law and Article 4 of the Income Tax Law Regulations.
In this context, it is crucial to consider several aspects, such as identifying the type of income generated, understanding its application, and determining the appropriate time to comply with the tax obligation, among other relevant points. The income tax corresponding to non-domiciled entities carrying out activities in the country is determined through the withholding made by the payer. According to the first paragraph of Article 76 of the Income Tax Law, those paying or crediting income to non-domiciled beneficiaries from Peruvian sources must withhold and remit to the tax authority the taxes indicated in Articles 54 and 56 of the Income Tax Law. This process is carried out definitively within the deadlines stipulated by the Tax Code for monthly obligations, as applicable.
Global Challenges: Double Taxation
Although, in our tax system, the condition of the income tax taxpayer is related to the domicile and the source generating the income. In other countries, the criteria adopted may be different, which results in a lack of uniformity worldwide and problems of double taxation.
Double or multiple taxation occurs when two or more nations claim the right to tax the same income. In such situations, a specific profit may be taxed by more than one country, affecting the company. For example, a foreign company generates its income in Peru and pays the income tax to SUNAT, but it has to be taxed also in the country of which it is a resident.
International Solutions and Conclusions
In order to address and solve these double taxation problems internationally, States enter into interstate agreements or conventions. These agreements not only establish the rules to avoid double taxation but also define the mechanisms for collaboration among Tax Administrations to detect tax evasion.
Through these conventions, the participating States renounce to tax certain profits and agree on the authority of one of them to tax, or otherwise, they establish a system of shared taxation where both States collect part of the total tax to be paid by the taxpayer.
In conclusion, the Transfer Pricing analysis is a crucial tool to preserve national tax collection by avoiding the transfer of profits among countries. Within this analysis, the distinction between domiciled and non-domiciled taxpayers emerges as a crucial criterion to determine the tax situation, highlighting the differences in tax obligations. Conversely, double taxation issues may arise if these concepts are not clearly understood.
