A foreign entity qualifies as a CFC if, by the end of the Peruvian tax year (December 31) it satisfies the following criteria:
- it is an entity separate from its PTR holder;
- it is located in a tax haven or a country where the effective IT rate applicable to the passive income in question is less than 22.5% (ie 75% of the 30% IT rate applicable in Peru to such passive income); and
- the PTR owns directly, indirectly, or constructively or is entitled to more than 50% of that foreign entity's equity, vote, or results.
All forms of foreign legal entities and vehicles are subject to the CFC test described above, including corporations, associations, and foundations, as well as trusts and investment funds.
The Regime incorporates similar dispositions found in CFC Regimes effective in other jurisdictions. For example, it establishes a de minimis rule pursuant to which a PTR shall not recognise any passive income earned by its CFC if that passive income does not exceed approximately $7,200 or if it represents less than 20% of the total income of the CFC. If, on the other hand, the CFC's foreign source passive income equals at least 80% of its total income, a full inclusion rule will trigger and the total amount of income earned by such CFC passive and non-passive shall be attributable to the PTR.
The Regime excludes passive income earned by a CFC from a Peruvian source, as well as foreign source passive income subject to a 22.5% effective income tax rate abroad (ie, 75% of the 30% Peruvian IT rate applicable to such passive income). Dividends actually distributed by a CFC to the PTR, or a higher tier CFC, are also excluded, as these are previously taxed under the Regime's abovementioned attribution rules.
Finally, subject to certain limitations, income tax paid by a CFC in connection with the passive income mentioned above whether in the CFC's country of residence or through withholding tax in the country of source may be used as foreign tax credit by the PTR in Peru.
Although the Regime has incorporated relevant aspects of CFC Regimes established in other jurisdictions, some issues remain to be addressed by the Peruvian Tax Authorities. For example, there is no clear guidance regarding the extent of the Regime's 'control' requirements regarding vehicles where relevant economic and controlling rights have been waived. Also, formal paperwork requirements and filing procedures (including acceptable documents, forms, and deadlines) have not been enacted.
We expect the Peruvian Tax Authorities to provide further clarifications and guidance in connection with these issues in the upcoming months, as well as to enact a detailed filing procedure and requirements before the end of the year.