Peruvian CFC Rules: Practice and Pitfalls. March 20, 2014

Transcription

1 eruvian Rules: ractice and itfalls March 20, 2014

2 Until December 31, 2012 foreign foreign is a eruvian resident individual owns deposits in non-eruvian (foreign) banks, foreign shares and foreign bonds Foreign source earned by (cash basis): subject to an Income Tax in eru (marginal rate of 30% above US$ 80k approx.) If an offshore vehicle () was interposed? The obligation to pay Income Tax was deferred Slide 2

3 Until December 31, 2012 (contin.) 2003 Tax Court decision revoc. trust foreign revoc. trust foreign Disregarded a foreign revocable trust in which the settlor () was one of the beneficiaries, and had powers to move funds and make How this decision affected the trust business in eru? Slide 3

4 As from January 1, 2013 Controlled-Foreign-Entity () rules apply: o o Decree 1120 (amended the Income Tax Law) Supreme Decree EF (amended the regulations) shall pay Income Tax in eru on the passive obtained by, regardless of whether the latter effectively distributes the corresponding dividends Mexico, Argentina, Venezuela, Spain New GAAR artificial or improper scheme foreign Slide 4

5 Basic concepts Resident controlling person rules Apply to eruvian resident taxpayers Controlling certain non-resident entities () With respect to passive earned by the Net passive attributable Slide 5

6 Resident controlling person Non-resident entities of any nature Having a separate legal personality for Income Tax purposes Regulations: any entity such as a company, investment fund, partnership, association, trust or foundation, can qualify as a Net passive attributable Slide 6

7 (contin.) Resident controlling person (contin.) Incorporated, resident and/or domiciled in a tax haven or in a country wherein passive is not subject to Income Tax or, being subject to an Income Tax, the corresponding tax is equal or lower than 75% of the Income Tax applicable in eru (i.e. effective 22.5%) Regulations: comparison must be made with the tax effectively paid or that would be paid abroad Net passive attributable Slide 7

8 Resident controlling person Resident controlling person Net passive attributable Resident controlling person 50% Test If at the end of the tax year has a direct or indirect participation of more than 50% in: paid-in capital; or, voting rights; or, profits Alone or together with resident related parties (includes family members to a certain level e.g. cousins, brothers-in-law) Slide 8

9 Attributable passive Resident controlling person Attributable passive Dividends (except those distributed by one to another) Interest (unless obtained by a bank) Royalties Capital gains arising from the transfer of : o o o intangibles real estate securities Net passive attributable Slide 9

10 Attributable passive (contin.) Resident controlling person Net passive attributable Attributable passive (contin.) Real estate rental (unless real estate business) Income deriving from the assignment of rights to use goods or intangibles generating passive Income paid to a by eruvian residents : o o o if they are related parties; is a deductible item for the resident counterparty; and, is subject to an Income Tax in eru lower than 30% Slide 10

11 Attributable passive (contin.) Resident controlling person Attributable passive (contin.) If revenues qualifying as passive are equal or larger than 80% of the s total revenues, then all the revenues obtained would be treated as passive The analysis and calculation must be made independently considering each held by a eruvian resident taxpayer Net passive attributable Slide 11

12 Attributable passive (contin.) Attributable passive (contin.) 1 2 In other words, the determination must be made considering each on a separate basis, excluding those dividends distributed by one to another i.e. those paid by 3 to 1 and by 4 to Slide 12

13 Attributable passive (contin.) Resident controlling person Attributable passive (contin.) Income and expenses to consider are those accrued in the during the year As a general rule the tax year runs parallel with the calendar year Attribution is made in local currency (exchange rate in force at year-end) Net passive attributable Slide 13

14 Non-attributable passive Resident controlling person Net passive attributable Non-attributable passive Income from eruvian sources (unless it derives from transactions with eruvian residents and certain conditions are met) That levied with an Income Tax higher than 75% of that applicable in eru (i.e. 22.5%), in a third jurisdiction If revenues qualifying as passive are equal or lower than 20% of the s total revenues Slide 14

15 Foreign tax credits Resident controlling person ayment of Income Tax Foreign tax credits may credit in eru Income Taxes paid abroad by its, without exceeding the limits set forth in Article 88(e) of the Income Tax Law Article 88(e): recognition of foreign tax credits (must be an Income Tax and be effectively paid) Net passive attributable Slide 15

16 Dividends corresponding to passive Resident controlling person Dividends corresponding to passive dividends Dividends paid by a to its controlling shareholder () would not be subject to Income Tax in eru, for the portion corresponding to passive previously attributed Avoids double taxation on the same Net passive attributable Slide 16

17 Formal obligations Resident controlling person Net passive attributable Formal obligations Resident taxpayers Keep local books and records for tax purposes, detailing the attributed, the dividends and taxes paid abroad The eruvian tax authorities may determine the scope of said information and request its filing Slide 17

18 ractical cases 33.3% 33.3% 33.3% Q R Friends each owning 33.3% of an offshore vehicle, Q and R are eruvian resident individuals, Q and R are not related The 50% test is not verified and, therefore, is not a of, Q and R Cell companies? Slide 18

19 ractical cases (contin.) eruvian father Non-resident son 49% 51% Families with non-resident members eruvian resident father and his non-resident son own together 100% of The Father, including resident related parties, only own 49% The 50% test is not verified and, therefore, is not a of the Father Slide 19

20 ractical cases (contin.) (beneficiaries) InsureCo (eru) Life insurance policies Life insurance benefits are not subject to Income Tax in eru ayments of premiums to non-resident insurance companies are subject to an effective 2.1% withholding tax oint of attention: the insurance company must carry out an insurance activity and assume a risk (structures where a portfolio of are managed?) Slide 20

21 ractical cases (contin.) eruvian father revoc. trust Capital stock (beneficiaries) irrev. trust Income stock Split trust The eruvian father, through the revocable trust, has no rights over the passive being generated (only to recover the sum initially contributed) The sons are the sole beneficiaries of the irrevocable trust Is the 50% test verified? GAAR, eruvian corporate laws Slide 21

22 ractical cases (contin.) eruvian father (beneficiaries) irrev. trust 49% 51% Irrevocable trusts eruvian resident father owns 49% of an offshore vehicle () An irrevocable trust owns the remaining 51% The sons are the sole beneficiaries of the irrevocable trust Is the 50% test verified? Slide 22

23 ractical cases (contin.) MaltCo 1 (Malta) MaltCo 2 (Malta) Companies in Malta assive subject to a 35% corporate tax paid by MaltCo 2 MaltaCo 1 has the right to obtain a refund of 6/7 of the tax paid by MaltCo 2 ayment of dividends from MaltCo 1 to not subject to taxation in Malta GAAR? Slide 23

24 Contact information Jose Chiarella Slide 24