Uruguayan Tax Office clarifies substance requirements applicable to the Corporate Income Tax’s source criteria

On 15 March 2023, the Uruguayan Tax Office issued a resolution that aims to clarify several aspects of the substance requirements applicable to the Corporate Income Tax’s (CIT’s) source criteria (for background, see EY Global Tax Alert, Uruguay’s Ministry of Economy and Finance issues decree regulating law that modifies Uruguayan CIT source criteria, dated 16 December 2022).

These are the main regulations introduced by Tax Office Resolution No.488/023:

• Scope clarification regarding certain elements of income:

  • Yields of capital and capital gains from brands will be considered Uruguayan-source (i.e., regardless of whether economic substance requirements are met), as long as the CIT taxpayer forms part of a multinational group.

  • The substance requirements would not apply for notional interests.

  • Currency exchange results would not be subject to the economic substance test, unless originated on brands or any other asset liable to produce income under scope.

• “Necessary strategic decisions” definition: The decision making involved in the acquisition, holding and property transfer of the assets under scope.

• Holding and real estate company definition: An entity with at least 75% of its monthly average of assets directly related to real estate or holding company activities in the fiscal year.

• Annual affidavit requirement: An annual affidavit establishing compliance with the substance requirements should be filed within four months from the fiscal-year end; the resolution details the information requirements.

• Outsourcing documentation: When activities are outsourced to a third party, invoicing of the services should detail human resources affected, hours applied on the performances of the activities within Uruguayan territory and the facilities where the activities were developed (this requirement would apply as of 1 April 2023).

• Documentation retention: All documents that support the information provided on the annual affidavits should be retained for the tax statute of limitations (generally 5 years, which could be extended to 10 years in case of tax fraud).

The Resolution was published on 15 March 2023 and enters into force as of that date.

For additional information with respect to this Alert, please contact the following:

EY Uruguay, Montevideo

• Martha Roca

• María Inés Eibe

• Piero de los Santos

Ernst & Young LLP (United States), Latin American Business Center, New York

• Lucas Moreno

• Ana Mingramm

• Pablo Wejcman

• Enrique Perez Grovas

Ernst & Young LLP (United Kingdom), Latin American Business Center, London

• Lourdes Libreros

Ernst & Young Tax Co., Latin American Business Center, Japan & Asia Pacific

• Raul Moreno, Tokyo

• Luis Coronado, Singapore

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.