Requirements have been made more flexible so that taxpayers can deduct expenses for losses

By means of Supreme Decree No. 86-2020-EF, published today, the requirements for the deduction of expenses due to loss of stocks have been made more flexible.

Under the previous regime, in order to deduct expenses for the loss of stocks, it was required that their destruction be carried out in the presence of a Notary Public or Justice of the Peace, and SUNAT must be notified in advance not less than 6 working days in advance.

The new regulation establishes that the communication to SUNAT shall have to be made no less than 2 working days prior to the date on which the destruction will take place.

In the event that the cost of stocks to be destroyed in addition to the cost of stocks destroyed previously in the same year amounts to up to 10 UIT (S/.43,000), SUNAT will accept that the destruction be supported in a report that contains the information established in the Supreme Decree, being not required the presence of a Notary or Justice of the Peace, without prejudice to prior communication to SUNAT within the aforementioned period.

The form and term in which the report must be submitted and the manner in which the prior communication to SUNAT shall be made will be established by a superintendence resolution. As long as said resolution is not issued, the report shall be submitted in the SUNAT offices within 5 working days after the stockpiles are destroyed and the prior communication to SUNAT must be submitted to its office (except in the case of destruction carried out until July 31, 2020 that have a special regulation and are mentioned below).

The amendment takes effect on April 22, 2020.

Now, in view of the isolation measures issued by the government, certain transitional provisions have been established:

• In the case of the destruction of stocks that takes place between April 22 and July 31, 2020, this must be credited only with the aforementioned report, regardless of the cost of the goods, provided that the act of destruction is previously communicated to the email address: [email protected], no less than 2 workings days in advance. The SUNAT - through a resolution of the superintendence - may extend this term to a date after July 31, 2020, but without exceeding the initial due date for the presentation of the annual Income Tax Affidavit corresponding to the taxable year 2020. In this case, the report must be submitted to SUNAT at the end of the fifth working day from August 1, 2020 or the term extended by SUNAT.
  
  
• In the case of taxpayers who, as a result of the State of National Emergency declared by Supreme Decree No. 044-2020-PCM and its extension, had carried out the destruction of their stocks without the presence of a Notary or Justice of the Peace before the April 22, 2020, they may certify the destruction of those with the report incorporated by Supreme Decree No. 86-2020-EF, which must be submitted to SUNAT at the end of the fifth working day from August 1, 2020 or the deadline extended by the SUNAT.

Amendments to the Indirect Disposal Regime of shares:

The Supreme Decree No. 085-2020-EF (published on April 21, 2020) has amended the Regulations of the IR Law in various aspects related to the "market value" of the shares (Peruvian and foreign) for the purposes of the regime of indirect disposal. Thus, this amendment affects the following aspects of the regime:

A. The market value of the shares to be considered for the purposes of the Tests

Pursuant to the amendment, the “market value” of the shares is considered, as the case may be:

i.The highest daily opening or closing trading price: In the case of listed shares.

ii. The value for discounted cash flow: When the legal entity shows a foreseeable horizon of future flows or features such as licenses, authorizations or intangibles that allow the existence of such flows to be foreseen (provided that what is indicated above in i. is not applicable). The taxpayer must have a technical report to verify the valuation carried out under this method.

Change: This valuation method was not included in the Regulations.

iii. The value of equity participation: When they do not meet the conditions provided in the Regulations to apply the provisions of i. or ii., calculated on the basis of the last audited balance sheet of the issuing company, closed within 90 days prior to the disposal.If within 90 days prior to the indirect disposal of shares, a capital reduction is made in the non-domiciled legal person, the balance sheet to be considered shall be the one that corresponds before the aforementioned reduction, but within said period.

Change: Before the amendment, the equity value was calculated on the basis of the issuer company's last audited annual balance sheet closed prior to the disposal date.

If the above does not apply, the "equity value" shall be one of the following:

- The value of equity participation increased by the monthly average market active rate in national currency (TAMN) published by the SBS.

- The appraisal value established within the 6 months prior to the date of the disposal or issue of shares or participations as a result of a capital increase.

Change: The Regulation did not contemplate the use of the equity participation value increased by the TAMN in the absence of a balance sheet. Supreme Decree No. 085-2020-EF introduces this provision.

B. How the 50% Test should be carried out

When applicable, apply the valuation methods ii. or iii. aforementioned, the 50% Test must be carried out not only on the date of the disposal, but also in each of the 3 quarters preceding the one in which the disposal is carried out (i.e. there are 4 quarters in total).

- In the case of the 3 quarters prior to the disposal, the market value obtained by virtue of the balance sheets corresponding to the end of each quarter is used.

- In the case of the quarter to which the disposal corresponds: the market value is determined according to the method that is applicable to the legal entity (i.e. discounted cash flow value or equity participation value).

Change: Before the amendment introduced by Supreme Decree No. 085-2020-EF, this analysis was done only once; that is, looking at the value of equity participation according to the last audited annual balance sheet of each company, closed prior to the disposal date.

C. Uniformity of the methodology used to prepare balance sheets

The balance sheets of domiciled and non-domiciled legal persons (on the basis of which the “market value” is determined) must be prepared based on uniform accounting policies. Otherwise, the balance sheet of the foreign entity must be reformulated according to the accounting policies applied to the Peruvian legal entity whose shares are indirectly disposed of.

Change: Before this amendment, the Regulation did not include a provision on the matter.

D. Rules to determine the "tax base" (i.e. part of the income that shall be considered "Peruvian source income" in case the transaction qualifies as "indirect disposal")

In order to determine the tax base, the rules provide that the market value of the shares of the foreign entity must be compared vis à vis the market value of the shares of the Peruvian legal entity that are indirectly disposed of.

The change in this point refers to the “market value” of the shares of the foreign entity, which must be considered for the purposes of calculating the tax base, as indicated below:

- This value is expected to be the highest between: i) the transaction value; and, ii) the market value to be determined on the basis of the applicable method as indicated in the preceding section A (price, discounted cash flow or equity value).

Change: The standard did not provide for this comparison, referring only to the market value resulting from the listed value or equity participation value. This comparison rule has been incorporated by Supreme Decree No. 085-2020-EF.

- The regulation specifies that if, prior to indirect disposal, a capital reduction is made in the non-domiciled legal entity, and provided that the applicable valuation method is the equity value (either on audited balance sheets or the one increased by the TAMN), then, the balance sheet to be considered shall be the one that corresponds after said reduction.

Change: The Regulation did not provide for this rule.

The market value determined in accordance with the foregoing is multiplied by the percentage of participation (i.e. equivalence percentage), determined in accordance with the provisions of the second paragraph of numeral 1 of subsection e) of article 10 of the Law, which is held at that date.

Validity In the absence of an express provision that postpones its entry into force, the aforementioned changes must take effect from the day following the publication of Supreme Decree 085-2020-EF, that is, from April 22, 2020.