Peruvian Tax Authority revises the approach to the indirect transfer of shares and the Double Taxation Treaty between Peru and Chile

Christian Del Carpio
Rodrigo, Elias & Medrano, Perú
cdelcarpio@estudiorodrigo.com

The Peruvian Tax Authority has issued Internal Report No 117-2023-SUNAT/7T0000, which concludes that, under the Double Taxation Treaty (DTT) between Peru and Chile, capital gains obtained by a company resident in Chile from the indirect transfer of shares of a company resident in Peru, through a transfer of shares issued by a Chilean company, can also be taxed in Peru, in accordance with Article 21 of the DTT.

This new decision revises the interpretation of the DTT included in Internal Report No 001-2021-SUNAT/7T0000, in which the Peruvian Tax Authority stated that capital gains in such cases could only be taxed in Chile.

Background

By way of background, Article 10 of the Peruvian Income Tax Law establishes that gains derived from an indirect transfer of Peruvian shares qualify as a Peruvian source income when the shares of a non-domiciled company are transferred, and the foreign company owns shares, either directly or indirectly, in a Peruvian entity, subject to certain thresholds and additional requirements stipulated in the law and regulations.

In the 2021 Internal Report (001-2021-SUNAT/7T0000), the Peruvian Tax Authority analysed paragraph 4 of Article 13 of the DTT, which outlines the rule for allocating taxation rights related to capital gains obtained from the transfer of shares. However, the Tax Authority concluded that this rule only applies to capital gains obtained by a resident of a contracting state from the disposal of shares of a company situated in another contracting state. This situation does not apply to the hypothetical case under evaluation, as the shares being transferred are issued by a company resident in Chile and the seller is also a resident of the same country.

Consequently, the 2021 Internal Report concluded that the indirect transfer of shares was encompassed by Article 13 paragraph 5 of the DTT (the ‘catch-all’ provision), which states that capital gains derived from the transfer of ‘any other property’ not mentioned in previous paragraphs, can only be subject to taxation in the contracting state where the seller resides (ie, Chile). Therefore, the Peruvian Tax Authority’s opinion in 2021 was that an indirect transfer of shares qualified as ‘any other property’ for DTT purposes.

The latest opinion

However, the new criterion that has been set out in Internal Report No 117-2023-SUNAT/7T0000, published in 2023, indicates that at the time the DTT was negotiated and executed, no rules existed either in Peru or Chile with regards to the taxation of capital gains from indirect transfers of shares. Therefore, the Peruvian Tax Authority is now of the opinion that it is not possible to interpret that Article 13 of the DTT includes indirect transfers under paragraph 5, which refers to ‘any other property’.

Therefore, the new view of the Peruvian Tax Authority is that Article 21 of the DTT shall apply in order to determine the taxation of capital gains derived from indirect transfers of shares. This rule refers to income not expressly mentioned in the other articles in the treaty, which under this particular DTT could be subject to taxation in both countries.

In its 2023 Internal Report, the Peruvian Tax Authority has concluded that: ‘Within the framework of the Peru–Chile DTT, capital gains obtained by a person resident in Chile from an indirect transfer of shares issued by a company resident in Peru, as a result of transferring shares issued by a company resident in Chile, may be subject to taxation in Peru, pursuant to Article 21 of the DTT.’

This new interpretation is binding on all officials working for the Peruvian Tax Authority. Although debatable, it is expected that the new criterion will even be applied to indirect transfers of shares that took place prior to the issuance of the 2023 Internal Report.