Ratification of the Multilateral Convention

Since 2017, Peru has been part of the BEPS Inclusive Framework, assuming the commitment to implement the minimum standards related to different actions of the BEPS Action Plan, such as Action 6 “Prevent the abusive use of DTAs” and Action 14 “Make the dispute resolution mechanisms provided for in DTAs more effective”.

In this context, on June 27, 2018, Peru signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (hereinafter “MLI”), with the purpose of updating the Double Taxation Avoidance Conventions covered and initiated the internal process of ratification by Congress.

On April 3, 2025, Congress published Legislative Resolution No. 32285, which approves the MLI, and on May 27, 2025, it was ratified by the President of the Republic through Supreme Decree No. 013-2025-RE.

The MLI will enter into force 3 months after the instrument of ratification is deposited with the OECD and will take effect as of January 1 of the year following its entry into force. The process is expected to be completed by the end of 2025 and to take effect as of January 1, 2026.

Once the MLI takes effect, the covered DTAs with Canada, Chile, South Korea, Portugal and Mexico will be amended.

Main changes

a) Preamble: Include the purpose of not creating opportunities for non-taxation or reduced taxation by means of tax evasion or avoidance.

b) Anti-abuse of covenants clauses: Include the Principal Purpose Test to avoid the abusive use of the agreements, on an interim basis, until a Benefit Limitation Clause is incorporated via bilateral negotiation.

c) Permanent Establishments: Indicate specifically those activities that do not constitute a PE when they are ancillary or auxiliary to a PE and include a rule to avoid fragmentation of activities, in order to prevent artificial circumvention of EP qualification.

d) Capital gain from disposal of shares: Updating of the conditions for taxing the disposal of shares if within 365 days prior to disposal 50% of the value of the shares or rights derives directly or indirectly from real estate.

e) Improving dispute resolution mechanisms: Incorporate the minimum standard of a 3-year term to trigger the Mutual Agreement Procedure. Peru reserves the right to arbitrate.

Approval of the Double Taxation Avoidance Agreement between Peru and the United Kingdom

On March 20, 2025, Peru signed a DTA with the United Kingdom, which will enter into force once the internal ratification processes of each signatory country are completed. In Peru, it must be approved Congress and ratified by the President.

The agreement has been approved following the 2017 OECD model and in compliance with the BEPS plan ruled by the OECD.

Principal aspects of this DTA

a) Tax resident

• Pension funds recognized by the States are included in the definition of tax resident.
• It also includes organizations with religious, charitable, scientific, cultural, educational, sports, artistic, literary, political, sporting, trade, social assistance or resident housing purposes, which generate income or profits totally or partially exempt from taxes according to their internal legislation.

b) Business benefits

• Only income in the State where the entity receiving such income is located is subject to taxation, unless there is a permanent establishment in the other State.

c) Permanent Establishments

• It is established that the exceptions for the constitution of a permanent establishment will not be applicable to a fixed place where auxiliary or preparatory activities are carried out, when analyzed together a company or a closely related part of it performs complementary functions that are part of a cohesive business operation.

d) Dividends

• Maximum rate of 10% and Exceptional rate of 15% when derived from exempt income (including profits) originated directly or indirectly from real estate.

e) Interests

• Maximum rate of 10%.

f) Royalties

• Maximum rate of 15%.

g) Capital gain on disposal of shares directly or indirectly derived from real estate

• Taxation in Peru only yes:
  i. The shares have been owned for more than 365 days prior to the disposal.
  ii. More than 50% of the value of the shares originates directly or indirectly from real estate located in Peru.

h) Capital gains on shares or rights representative of capital

• Taxation in Peru if:
  i. The shares have been held for a period of 365 days prior to disposal.
  ii. More than 20% of the capital of the company issuing the shares has been owned.

i) Non-discrimination

• Interest, royalties and other disbursements paid to an enterprise of a Contracting State to a resident of the other Contracting State shall be deductible in determining taxable profits, under the same conditions as if they had been paid to a resident of the first-mentioned Contracting State.

j) Anti-Circumvention Clause

• Benefits granted by the DTA shall not apply when the main purpose of a transaction or arrangement is to obtain the benefits granted by this convention.

Renegotiation of the DTA with Switzerland – Other agreements

The Ministry of Economy has completed the renegotiation of the DTA with Switzerland. Among other modifications, the Principal Purpose Test will be incorporated to prevent abuse of the Convention, ensure a more efficient and transparent exchange of information in international auditing, and improve the Mutual Agreement Procedure.

Peru is currently negotiating the approval of the DTA with France and China, and to invite the United Arab Emirates, Saudi Arabia, Australia and Singapore to negotiate.

The new DTA provisions will have an impact in the short term on cross-border transactions with residents in Canada, Chile, South Korea, Mexico and Portugal; and in the medium term with the United Kingdom and Switzerland, so it is advisable to anticipate and adapt tax compliance procedures.

Written by: Luisa Godomar of Rubio Leguia Normand