Peruvian Tax Authority establishes guidelines for tax treatment of digital services under Andean Community multilateral agreement

In Ruling 000049—2024, issued on 9 July 2024, the Peruvian Tax Authority established that digital services income may qualify either under Article 6 (Business profits) or Article 14 (Services, technical services, technical assistance, and consulting services) of Decision 578, multilateral agreement of the Andean Community to avoid double taxation. A case-by-case analysis is necessary to determine which article applies.

Background

Peruvian legislation establishes that digital services are deemed as Peruvian-source income taxed at a 30% withholding tax rate when they are economically used or consumed in Peru, regardless of where they are provided (within Peru or abroad). Services are characterized as digital services when they comply with general requirements such as being rendered through the internet or similar platforms, being essentially automatic with minimal human participation and not viable absent the internet.

In addition, Peruvian Income Tax Regulations establish a non-exhaustive list of services that could be considered digital services, such as technical support and software maintenance. In this regard, on 14 June 2024, the Peruvian Tax Authority issued Ruling 000039—2024, which concluded that the services on the non-exhaustive list will always be considered as digital services even if they do not comply with the general requirements to be characterized as digital services. (For more in the regulation, see EY Global Tax Alert, Peruvian Tax Authority establishes guidelines to determine whether a service qualify as digital services, dated 12 July 2024)

Article 6 of Decision 578, Multilateral Agreement of the Andean Community (Peru, Ecuador, Bolivia and Colombia) to avoid Double Taxation, establishes that business profits shall only be taxable in the member country where such activities have been carried out. On the other hand, Article 14 establishes that income earned for professional services, technical services, technical assistance services and consulting services shall be taxable only in the country where the benefit of the services is produced — meaning, the country in which the payment is considered as an expense for corporate income tax purposes.

Peruvian Tax Authority Ruling 000049—2024

Ruling 000049—2024 provides that under Decision 578 of the Andean Community, income from services considered to be digital services for Peruvian tax purposes could be considered business profits (Article 6) or services profits (Article 14), based on a case-by-case analysis.

Services such as online technical support and software maintenance, including online assistance that involves human intervention as an essential element, may qualify under Article 14 of Decision 578, corresponding to income from professional services, technical services, technical assistance services and consulting services. These services will be taxable only in the country where the payment is considered to be an expense for corporate income tax purposes.