Peru: When lack of documentation triggers a dividend recharacterization

In a recent resolution, the Peruvian Tax Court analysed a case in which funds from a company were deposited directly into the personal bank account of its legal representative without supporting documentation. The Peruvian tax authority (SUNAT) treated such deposits as undeclared dividends. The Ecovis experts explain the court’s ruling, which contradicts this view.

Background to the case

In Resolution No. 5340-11-2024 (dated 6 June 2024), the Peruvian Tax Court reviewed the treatment of deposits made by multiple companies into the personal bank account of their shared legal representative. SUNAT had recharacterized these transfers as second category income, specifically as dividends paid in cash, based on Article 24(i) of the Peruvian Income Tax Law.

However, the taxpayer challenged the assessment, arguing that the transfers were not distributions of earnings but rather operational payments or reimbursements, and that the absence of documentation should not automatically qualify them as dividends.

SUNAT’s position and arguments

To support the classification as a cash dividend, SUNAT put forward several arguments:

• The funds were transferred to an individual with no clear legal obligation or service agreement justifying the payments
• There was no evidence of mandates, reimbursement orders, or commercial contracts backing the disbursements
• Therefore, the amounts qualified as undeclared dividend distributions, subject to tax as second category income and the corresponding penalties

We support you in creating accurate reports and documentation, reducing audit risks for you.

Octavio Salazar Mesías, Partner – Tax & Legal Department, ECOVIS Peru, Lima, Peru

The ruling by the Tax Court

The Tax Court disagreed with SUNAT’s position on several grounds:

• SUNAT failed to demonstrate that the funds were distributed within the framework of a formal profit allocation process governed by Article 24-A of the Income Tax Law
• The authority also did not identify under which specific paragraph of Article 24-A the recharacterization was being applied
• The court concluded that, although the lack of documentation is problematic, it is not sufficient on its own to presume a distribution of profits

This ruling reaffirmed that the burden of proof lies with the tax authority, and that a simple transfer of funds to a legal representative’s account does not automatically constitute a dividend if there is no concrete evidence of profit distribution.

What companies should do now

The Ecovis experts provide recommendations to help companies avoid similar disputes in future audits:

• Formally document any transfers to company officers or legal representatives, including:
  • written mandates
  • reimbursement orders
  • detailed expense reports with supporting invoices
• Properly record all profit distributions through:
  • shareholder meeting minutes
  • profit distribution resolutions
  • withholding and remittance of applicable income taxes
• Maintain detailed accounting and legal records, including service agreements and financial authorisations, to support the legitimacy of each transaction.

The significance of the verdict

The ruling confirms that SUNAT cannot presume a dividend distribution based solely on unexplained bank deposits. Nonetheless, the absence of documentation places the taxpayer in a vulnerable position during tax audits.

For further information please contact

Octavio Salazar Mesías, Partner – Tax & Legal Department, ECOVIS Peru, Lima, Peru
Email: octavio.salazar@ecovis.pe