What is transfer pricing and why is it important?

Transfer pricing (TP) is typically defined as the value (price) placed between related parties in their cross-border transactions. The main purpose of TP regulations is to ensure that each country involved receives a "fair" share of the tax base. The objective of such regulations is to limit related parties from agreeing on a price that shifts profit from one country to another, effectively, taking advantage of the different tax rates and tax regulations at the expense of the tax jurisdiction where the profit was actually made.

To avoid any unwanted tax schemes, transfer pricing rules have been based on the arm's length principle which sets forth that prices or values imposed between related parties should correspond to those established between independent parties in similar transactions. For this purpose, tax authorities around the world take into consideration the characteristics of the goods or services transferred, the functions performed by the parties, the economic circumstances of the parties and any other relevant circumstances that may explain the price that is set forth by the related parties.

The operations that are covered are basically any type of cross-border transactions between related parties, including, for example, purchase and sale of products, services, financial transactions, technology transfers or transfer of rights to use patents, trademark, copyrights.

Peru Requirments

As of November 17, 2017, the Peruvian Government established new transfer pricing obligations based on the OECD's Base Erosion and Profit Shifting (BEPS) initiative. The main aspects of the decree include:

Local File: The local file documentation requirement applies only to taxpayers whose annual revenue for the fiscal year exceeds 2,300 Tax Units (approximately US$2.74 million). The first local file with information regarding related-party transactions and transactions with tax haven jurisdictions is required for the fiscal year 2017.

Information to be reported in the Local File includes:

  • Corporate organization structure
  • Management and administration information of the company
  • Information regarding main competitors
  • Intercompany transactions
  • Application of the benefits test to intercompany services

Master File: Taxpayers that are members of a group whose annual revenue for the fiscal year exceeds 20,000 Tax Units (approximately US$23.82 million) will be required to submit a master file with high-level information of the group's business operations and TP policies.

Information to be reported in the Master File includes:

  • Group's organization structure
  • Description of the business or business of the group entities
  • Intangibles and financial activities information (including related policies)
  • Financial and tax position of the group entities

CBC Report: Taxpayers that are members of a multinational enterprise (MNE) group will be required to annually file a CbC report that includes information on the revenue, taxes paid and business activities for each entity within the MNE group. The tax authorities (SUNAT) cannot rely on such information to propose TP adjustments without performing a detailed TP analysis of individual transactions.

Information to be reported on includes:

  • Amount of profits, losses, and gains accrued
  • Taxes Paid
  • Equity
  • Payroll information
  • Intangible assets of each of the group entities
  • Cases in which the Peruvian head office of a multinational group or other Peruvian entities of the group (if headquartered abroad) must file the CbC report. A list of exceptions is also provided in the regulations.

Intragroup Services:

  • A benefits test and related documentation requirements for the purpose of deducting costs/expenses related to such services;
  • A maximum 5% profit margin for the provider of low value-adding services; and
  • The general characteristics for qualification as a low value-adding service, including that the service:
    • Has an auxiliary or supportive nature;
    • Does not constitute the principal activities of the taxpayer or the group, as appropriate;
    • Does not require the use of unique and valuable intangibles, or lead to the creation of unique and valuable intangibles; or
    • Does not entail assuming or controlling a high or significant level of risk, or generate a significant level of risk to the service provider;


Transfer Pricing obligations in Peru are now being regulated in more detail than ever before. This could mean that intra-group operations will be subjected to greater scrutiny by the Peruvian tax authorities. In comparison, most companies in Chile will only file a transfer-pricing affidavit, and in some cases, a transfer pricing study. Both countries are following recommendations by OECD but the new legislation in Peru has taken it a step farther.

SUNAT, the Peruvian Tax Authority, has put together a transfer pricing control department, which forces taxpayers to plan ahead their transactions very carefully, The main implication is that taxpayers will be required to disclose more information. These additional disclosure requirements may result in an additional compliance burden for the finance and tax teams of the reporting entities.

For foreign companies establishing an office in the Region, areas such as transfer pricing requirements are often overlooked, although they undoubtingly have a profound effect on the type of tax structuring that can be put in place and the cost of complying with the new requirements.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.