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Peru digital services tax and income taxation: Legal controversies and implications

The Peruvian National Superintendence of Customs and Tax Administration (SUNAT) is interpreting the criteria for determining when services are considered digital very narrowly. This contradicts a Supreme Court ruling. The Ecovis consultants explain the controversy surrounding digital services and the impact of the ruling on taxpayers and tax authorities.

The taxation of digital services has become a critical issue in Peru’s regulatory landscape. The Supreme Court’s ruling in Cassation No. 2705-2024-LIMA clarifies the interpretation of digital services under the Income Tax Law (LIR), contradicting the SUNAT position.

Background: The case of the foreign parent company and its Peruvian subsidiary

A foreign parent company entered into a contract with its Peruvian subsidiary to provide business services. These services did not qualify as digital, as they were not conducted via the internet. Instead, specialised professionals remotely performed intellectual tasks, delivering specific responses to the subsidiary’s various departments without relying on the internet. SUNAT, however, asserted that these services should be considered digital as defined by the regulations of the income tax law. According to SUNAT, it is unnecessary for the service to meet the general requirements set forth in the law to be classified as digital.

The controversy: Do the regulatory provisions supersede the legal requirements?

The core issue is whether the specific list of operations outlined in the regulations of the income tax law is sufficient to classify a service as digital or if such services must also meet the general legal criteria of digital services. The law stipulates that for a service to be considered digital, it must depend on information technology and be essentially automatic by nature. The taxpayer argued that the business services provided by the foreign parent company did not meet these criteria and, therefore, should not be subject to the 30% withholding tax applicable to digital services. SUNAT, on the other hand, maintained that the classification outlined in the regulations was sufficient to consider the service as digital, even if it lacked the essential automation and technological dependency required by law.

We support taxpayers in defending their positions against aggressive tax assessments that lack a solid legal basis.

Octavio Salazar Mesias, Partner, ECOVIS Peru, Lima, Peru

The Supreme Court ruling: Cassation No. 2705-2024-LIMA

The Supreme Court sided with the taxpayer, ruling that the list of digital services in the regulations must always be subject to the legal requirements established in the income tax law. Specifically:

1. A service must depend on information technology: The service must require technology as an intrinsic part of its execution.
2. The service must be essentially automatic: The process must be executed automatically, with minimal human intervention.

Since the services provided by the foreign parent company were intellectual in nature and performed by professionals without reliance on technology, they did not meet the legal criteria for digital services. Consequently, they were not subject to the 30% withholding tax.

Implications of the ruling

• For taxpayers: This ruling provides greater legal certainty for multinational companies operating in Peru. Businesses that receive services from foreign entities should assess whether those services meet the legal definition of digital services before applying withholding tax.
• For tax authorities: While this decision clarifies the interpretation of digital services, it does not necessarily change SUNAT’s approach. The tax authority has emphasised in Report No. 000039-2024-SUNAT that digital services are subject to income tax withholding if they are included in the regulations, even if they do not meet the legal criteria of essential automation and technological dependence.
• Potential increase in tax litigation: SUNAT’s strict approach to digital service taxation aligns with its ambitious revenue collection targets. However, enforcing tax obligations on services that do not meet the legal definition of digital services may lead to unnecessary litigation, increasing compliance costs for businesses and burdening the judicial system.

Conclusion

The Supreme Court’s ruling in Cassation No. 2705-2024-LIMA reinforces the principle that regulations cannot override the legal requirements set forth in income tax law. While SUNAT continues to assert its broad interpretation of digital services, businesses must carefully analyse their service agreements to determine whether they meet the criteria established by law.

For further information please contact:

Octavio Salazar Mesias, Partner, ECOVIS Peru, Lima, Peru
Email: octavio.salazar@ecovis.com.pe

How to register a foreign association in Tunisia: Which obligations must be met

Foreign associations operating in Tunisia must adhere to a comprehensive set of legal, accounting, tax, and social obligations to ensure compliance and operational efficiency. Failure to comply may result in the suspension of the association’s activities. These requirements are designed to promote transparency, accountability, and good governance. The Ecovis experts know the details.

Legal obligations

To operate legally, foreign associations must:

• Register with Tunisian authorities, submitting a declaration to the Secretary General of the Government with details of the parent organisation and objectives.
• Publish their establishment in the Official Gazette of the Republic of Tunisia (JORT).
• Register with the National Register of Enterprises (RNE) within one month of publication.

Additional legal requirements include:

• Compliance with personal data management regulations.
• Setting a fixed date for the Annual General Meeting (AGM) to approve financial statements.
• Publishing audited financial statements and the auditor’s report in local media. Foreign donations and funds must be reported to the Central Bank of Tunisia (BCT) and the Secretary General of the Government.

We help you meet the legal, accounting, tax and social obligations to ensure effective operations.

Khalil Sabbagh, Managing Partner, ECOVIS KDH Partners, Tunis, Tunisia

Accounting obligations

Foreign associations must maintain accurate and up-to-date accounting records in compliance with Tunisian Accounting Standard 45 (NCT 45), which is tailored for non-profit organisations. Key practices include:

• Tracking income and expenses by project using an analytical chart of accounts.
• Properly accounting for restricted and unrestricted grants, as well as in-kind donations, ensuring alignment with contractual terms.
• Maintaining physical and digital accounting records for at least 10 years.
• Implementing clear procedures for travel expenses, including mission orders and supporting documentation.
• Regular reconciliation of accounting records with declarations (e.g., employer declarations, activity registers).

Tax obligations

Foreign associations must meet several tax-related requirements:

• Register with the tax authorities after publication in Tunisia’s Official Journal (JORT).
• File monthly returns for withholding tax, VAT, and other applicable taxes.
• Submit annual employer declarations and withhold taxes on payments to contractors or temporary staff.
• Notify tax authorities of any changes to the association’s statutes or secondary establishments.

Social obligations

Foreign associations must comply with social security regulations:

• Register with the National Social Security Fund (CNSS) upon hiring the first employee.
• Declare all employees, including temporary staff, and pay social security contributions.
• Notify the CNSS of any changes to the association’s address or secondary establishments.

For further information please contact:

Khalil Sabbagh, Managing Partner, ECOVIS KDH Partners, Tunis, Tunisia
Email: khalil.sabbagh@ecovis.tn

EU Omnibus Package: Significant Rollback of Corporate Sustainability Reporting Rules

The European Commission has announced its first EU Omnibus package to significantly reduce sustainability reporting requirements under the Corporate Sustainability Reporting Directive (CSRD) and other key ESG regulations. The proposal aims to streamline compliance, cutting annual administrative costs by an estimated €6.4 billion.

In addition to removing most companies from the CSRD, the Commission plans to revise the ESRS to substantially reduce the number of data points required by the sustainability reporting standards. It will not introduce planned sector-specific standards or require reasonable assurance under the CSRD.

Key Changes

• CSRD Scope Reduction: Only companies with more than 1,000 employees and €50 million in revenue or €25 million in assets will be required to report, exempting 80% of companies from the regulation. The second wave of CSRD reporting is postponed by two years.
• Simplification of reporting standards: The European Sustainability Reporting Standards (ESRS) will be revised to reduce data points, remove sector-specific requirements, and eliminate the need for reasonable assurance.
• Voluntary SME Reporting: Smaller companies can follow the newly introduced Voluntary SME (VSME) standards, which limit the sustainability data requests from larger companies and banks.

Implications for Financial Market Participants

• Regulatory compliance: Financial institutions must align their sustainability disclosures with the revised requirements.
• Supply chain adjustments: Banks and investors should adapt due diligence processes for SMEs, considering the shift to voluntary reporting.
• Strategic planning: ESG-driven investment strategies and risk assessments should account for these regulatory changes.

These reforms mark a significant shift in the EU sustainability reporting landscape, reducing the regulatory burden on companies while maintaining ESG transparency at a more targeted level. Companies should assess how the changes affect their reporting obligations and prepare accordingly.