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Taxation of Indirect Sale of Peruvian Stock
Although the rules for taxation of Indirect Sale of Peruvian Stock were set up in the Peruvian Income Tax Law in February 2011, recently, important amendments were introduced to these regulations. Taxand Peru looks at these amendments and give their take on the effect that this will likely have on future Sales of Peruvian Stock.
There is an Indirect Sale of Peruvian Stock when stock of a foreign entity that owns - directly or indirectly stock issued by a company incorporated in Peru is sold. This is provided that two requirements are met: (i) the fair market value of the Peruvian stock owned by the foreign entity is equal to 50% or more of the fair market value of the stock issued by the latter, and (ii) stock representing 10% or more of the capital of the foreign entity is sold during any given twelve month period.
If the foreign entity is domiciled in a tax haven, it is deemed as an Indirect Sale of Peruvian Stock unless neither of the two mentioned requirements are met.
On an indirect sale of Peruvian Stock, the Peruvian source taxable income will be determined by applying the foreign entity's percentage of participation in the equity of the Peruvian corporation over the fair market value of the stock of the parent corporation that is sold.
Tax basis cost
The tax basis cost of the foreign entity should be supported by an official document issued by the foreign governmental entity or by any other means that the Peruvian Tax Administration will establish in the future.
The company incorporated in Peru will be considered jointly and separately liable for unpaid taxes of the seller for taxes derived from the indirect sale of the Peruvian stock, when the purchaser is a foreign entity.
Although the amendments introduced to the Income Tax Law have clarified to some extent the Indirect Sale of Peruvian Stock tax regime, they are still pending the issuance of the corresponding regulations. Hence, issues regarding the certification of the tax cost basis or the compliance of formal requirements and payment of taxes in Peru are still unclear. Companies shall bear in mind that these regulations will apply even if the foreign entity is transferred within the same economic group.