Peru Tightens Cross-Border Tax Rules on Commodities

The Tax Management Transfer Pricing Report ™ provides news and analysis on U.S. and international governments’ tax policies regarding intercompany transfer pricing.

By Alex M. Parker

Peru is the latest Latin American company to tighten its tax rules on the cross-border transfer of commodities.

The government issued a legislative decree Dec. 31 expanding the use of the “sixth method” for most related-party transactions involving commodities. The decree, which has the force of law through delegated powers from Peru’s congress, requires that commodity transfers be benchmarked against market prices based on the shipment date for exports, and the “date of disembarkation” for imports.

Previous law in Peru only required the method for transfers involving a foreign intermediary, according to Roberto Cores, a partner with EY Peru in Lima.

“Now, the new version has a broader scope. Any time that you are actually commercializing commodities, you have to apply the market price of the commodities,” Cores told Bloomberg BNA.

In addition to the guidance on the sixth method, the decree gives instructions on calculating the charge for intercompany services and sets forth requirements for global tax and profit reporting consistent with the OECD’s guidance on country-by-country reporting.

Sixth Method

First devised by Argentina in 2003, the sixth method has been adopted by several Latin American countries where oil and other natural resources are a cornerstone of the local economy. Peru’s top exports include copper and silver, as well as logging and petroleum.

The sixth method requires that related-party commodity transfers be tied to independent prices on the day they are moved, without considerations such as geography, volume, the time of delivery or other contractual issues. While countries have seen it as a tool to stem tax avoidance, practitioners and taxpayers have criticized the sixth method as being out of step with the arm’s-length principle and unfair for excluding relevant considerations.

At least 13 Latin American countries, including Colombia in October 2016, have adopted versions of the sixth method as either an option or requirement.

The decree appears to deviate from guidance issued by the Organization for Economic Cooperation and Development under its project to combat tax avoidance, or base erosion and profit shifting, finalized in 2015, according to an EY alert on the decree. The OECD ultimately shied away from including the sixth method as a “special measure,” instead recommending that tax administrations use the shipping date as a reference if it can be supported through evidence. It also said the price could be “subject to any appropriate comparability adjustments based on the information available to the tax administration.”


The decree also includes a new “benefit test” for the deduction of charges for intra-group services, according to EY. The test requires companies to prove that the service provides an “actual economic benefit” to the entity receiving the deduction, and also caps charges for “low value-adding intra-group services” at a 5 percent markup of the costs involved in the service.

Low-value-adding services must be supportive in nature and not involve risk or the use of valuable intellectual property or other intangible assets.

Country-by-Country Reporting

The decree also enacted the OECD’s new country-by-country tax reporting plan. The rules require companies to submit a global blueprint of their operations, broken down by factors such as employees, income, and facilities by jurisdiction. According to an analysis from TPA Global, the country-by-country requirements must be submitted in 2018 for the 2017 tax year.

The decree took effect Jan. 1.

To contact the reporter on this story: Alex M. Parker in Washington at

To contact the editor responsible for this story: Molly Moses at

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