Telefónica have been in a long lasting tax dispute with SUNAT – the Peruvian tax authorities – over various tax and transfer pricing issues, and interest on tax debt has been accumulating. Telefonica requests the non-application of article 33 of the Tax Code with regard to the late payment interest on the tax debt related to income tax for the years 2000 and 2001, with respect to the periods that exceed the deadlines set forth in articles 142, 150 and 156 of the aforementioned code. Judgement of the Constitutional Court In this Judgement, the Constitutional Court declares Telefónica’s claim for violation of the right to reasonable time and ORDERS the recalculation of the default interest without considering those generated in excess of the legal time limit established to resolve the dispute. Although the purpose of late payment interest is to encourage the payment of taxes, the disproportionate increase due to the excess of the legal term to resolve (without valid ... Read more

DIGITEX INFORMATICA S.L. had entered into a substantial service contract with an unrelated party in Latin America, Telefonica, according to which the DIGITEX group would provide certain services for Telefonica. The contract originally entered by DIGITEX INFORMATICA S.L. was later transferred to DIGITEX’s Latin American subsidiaries. But after the transfer, cost and amortizations related to the contract were still paid – and deducted for tax purposes – by DIGITEX in Spain. The tax authorities found that costs (amortizations, interest payments etc.) related to the Telefonica contract – after the contract had been transferred to the subsidiaries – should have been reinvoiced to the subsidiaries, and an assessment was issued to DIGITEX for FY 2010 and 2011 where these deductions had been disallowed. DIGITEX on its side argued that by not re-invoicing the costs to the subsidiaries the income received from the subsidiaries increased. According to the intercompany contract, DIGITEX would invoice related entities 1% of the turnover of its own ... Read more

Telefónica brought before the Supreme Court of Peru the following issues related to a long lasting dispute with SUNAT – the Peruvian tax authorities: 1: Financial Charges – Carve Out 2: Withdrawal of assets of majority shareholder Telefónica del Perú S.A.A. 3: Depreciation of fixed assets transferred 4: Tax deduction for “Overhead” 5: Provision for doubtful debt collection The Supreme Court agreed with the tax authorities on issues 1 and 4 (carve out financial charges, related to the way in which they were financed; and the overhead tax deduction, which the tax authorities considered to be an incorrect application of accounting standards). The remaining three issues are still awaiting final determination. Click here for English Translation Click here for other translation ... Read more