Peru vs. “TELE SA”, July 2020, Tax Court, Case No 03306-9-2020

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Category: Beneficial Owner, General Anti-Avoidance Rules (GAAR), Tax Treaty Interpretation, Withholding Tax (WHT) | Tag: , , , , , , ,
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“TELE SA” had applied a 15% withholding tax rate to lease payments for telecommunications equipment purportedly provided by a Chilean company that had been established by the Mexican parent of the “TELE” group. TELE SA claimed the payments qualified as royalties under Article 12 of the Peru-Chile double tax treaty.

The Peruvian Tax Authority found the reduced 15 % rate did not apply to the lease payments because the Chilean entity was not the beneficial owner of the royalty payments. Hence an assessment was issued where withholding taxes had been calculated using a 30% rate under Peruvian domestic tax legislation.

An appeal was filed with the Tax Court.

Judgement of the Tax Court

The Tax Court upheld the decision of the tax authorities and dismissed the appeal of “TELE SA”.

The 15% withholding tax rate for royalty provided for in Article 12 of the double tax treaty between Peru and Chile did not apply to the payments as the Chilean company was not the beneficial owner, but a mere conduit.

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Peru vs TELE SA 2020_9_03306

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