Fiscal year-end closing Peru: The importance of proper tax returns for companies
Peruvian companies face a crucial phase in their tax compliance cycle: the end of the tax year (fiscal year-end closing). More than just an accounting exercise, a properly executed tax closing is a strategic process that directly impacts tax exposure, audit risk, cash flow, and future tax positions.
Experience shows that many contingencies detected by SUNAT during audits originate not from aggressive tax planning, but from deficiencies in the tax closing process itself, as the Ecovis experts know.
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Key tax risks associated with an improper fiscal closing
A weak or purely accounting-focused tax closing may lead to:
- Incorrect determination of taxable income and tax losses
- Improper recognition or deferral of income and expenses
- Unsupported deductions or weak documentation
- Errors in tax depreciation and amortization
- Incorrect carry-forward of tax losses or credits
- Exposure to penalties, interest, and extended audits
In practice, SUNAT’s audits frequently reconstruct prior fiscal closings to identify inconsistencies, especially in income tax, transfer pricing adjustments, and temporary or permanent differences.
Importance of a tax-oriented closing – not only accounting
Financial statements prepared under accounting standards (IFRS) do not automatically ensure correct tax compliance.
A proper tax closing requires a reconciliation between accounting and tax rules, identifying:
- Permanent differences (non-deductible expenses, exempt income)
- Temporary differences with future tax effects
- Items subject to SUNAT’s restrictive interpretation
- Positions that require technical support or risk assessment
Failure to perform this reconciliation often results in adjustments that could have been avoided with proper planning and documentation.
Audit defence and legal certainty
A well-documented fiscal closing strengthens the company’s defensive position during audits and disputes. Recent tax and supreme court case law has emphasised the importance of legal certainty and the finality of closed fiscal years, limiting SUNAT’s ability to reopen prescribed periods or indirectly adjust past results.
However, this protection only works if the original tax closing was technically sound and properly supported.
“A sound annual financial statement serves to ensure compliance with legal regulations and to protect the tax position for the coming years.”
Octavio Salazar Mesias, Partner, ECOVIS Peru, Lima, Peru
Strategic benefits of a proper fiscal year-end closing
A robust tax closing allows companies to:
- Reduce audit exposure and reassessment risks
- Identify tax contingencies before SUNAT does
- Optimise the use of tax losses and credits
- Improve predictability of cash flows
- Support tax positions with solid legal and factual grounds
- Align accounting, tax, and legal criteria consistently
From a risk management perspective, fiscal closing is the first line of defence.
Recommendations for companies
Companies should treat the fiscal closing as a strategic tax exercise, not a compliance formality, say the Ecovis advisors. Businesses should:
- Perform a comprehensive tax review before year-end
- Validate sensitive tax positions under SUNAT and tax court criteria
- Document key judgments and assumptions
- Correct issues proactively where possible
- Ensure consistency across tax returns, financial statements, and transfer pricing documentation
