The publication of the General Anti-Avoidance Rule (GAAR) in Peru was severely questioned. From the legal perspective, it was argued that it affected the legal certainty, since it did not have clear concepts. From the operational perspective, it was argued that Peruvian Tax Authority (SUNAT) was not prepared for its application because tax auditors would use it with a biased criteria and without a comprehensive economic and financial analysis.
These criticisms influenced the issuance of a Law that suspended the application of the Peruvian GAAR from 2012 to 2019. Date on which the GAAR regulation was issued, it gave form and substance parameters for its application and regulated its operational application to through a Review Committee that will decide its use, as an impartial control mechanism of the tax audit process. The objective was to give certainty to indeterminate concepts and establish a procedure to ensure their objective application.
Although, the regulation tried to give content to the qualification of acts as artificial or improper; however, it established an imprecise margin to determine the content of such legal concepts, which could make its application unreasonable or disproportionate. In practice, the application of the GAAR depends solely on the auditor's interpretation of the economic acts, which may be influenced by in dubio pro fiscum rule. The GAAR application requires SUNAT’s utmost analytical rigor by a specialized team which analyze operations in a comprehensive manner.
Consequently, it is important to review whether the Regulation established objective guidelines for applying the GAAR. One of the assumptions included therein states that it will be applied to acts, situations or economic relationships in which there is no correspondence between the benefits and the associated risks; or have low or scarce profitability or do not adjust to the market value or lack economic rationality.
In this regard, the regulation establishes that the auditor may evaluate the application of the GAAR when he/she identifies, within a tax audit, if any of the situations established in an enunciative list stablish by the Regulation occurs. For the analysis of such acts, situations or economic relationships, it must be taken into account that the objective of the GAAR is to discourage transactions whose main purposes is to obtain savings or tax advantages. Although the GAAR considers an exception for its application that is the existence of other valid purposes (commercial, economic, financial, etc.), for transaction; however, the Regulation does not establish objective parameters for this. Therefore, the auditor will decide whether to apply the GAAR if he/she considers that there is no correspondence between the benefits and associated risks in the acts performed, leaving the auditor free to make this determination. Unfortunately, the auditor may be biased by the existence of a tax advantage and decide to apply the GAAR without analyzing the existence of other benefits generated by the transaction.
In this context, the lack of clear and objective definitions to evaluate the circumstances in which the GAAR should be applied, as well as the auditor's discretion to apply it, could only be corrected by the Review Committee. For this reason, it is important to review whether the Review Committee can ensure impartiality and independence in the application of the GAAR.
Although the Regulation state that the Committee must summon the taxpayer to present its defense regarding the application of the GAAR, the relationship between the auditors and the taxpayer before the Committee is not regulated to ensure equal treatment.
The Review Committee is empowered to discarded the application of the GAAR, but the Regulation do not establish sufficient independence to guarantee the impartiality of its evaluation. It is necessary to improve the Regulation to guarantee a transparent process and equal treatment for both the taxpayer and the audit team.
For example, antepenultimate paragraph of article 62º-C of the Tax Code, states that the Review Committee is empowered to return the audit file to the tax auditor when it is necessary to evaluate aspects not presented in the report or the case submitted by the tax auditor to the Committee. Also, paragraph 10.4 of Article 10 of the GAAR Regulation states: "When the Review Committee considers that the report referred to in Article 62-C of the Tax Code should be supplemented or clarified, it shall return the report and the audit file so that such actions may be carried out considering the actions taken in the aforementioned file".
As can be seen, the role of the Committee is not clear and it seems that it only acts to guarantee the application of the GAAR, as a way to rectify tax auditor omissions and mistakes. In that sense, the Committee is not regulated as an impartial instance that guarantees due process and avoids its abusive use or the GAAR.
In order to guarantee impartiality, the Committee could not issue pronouncements to guide the auditors' actions for the application of the GAAR and even less to make other observations to the taxpayer in the event that the GAAR is not applicable. On the contrary, the parties should be given equal opportunity to present their arguments at the same time.
For all these reasons, several modifications to the current GAAR Regulation should be made. In specific, ones which make clear the limitations of the actions of the Committee.
For example, another aspect that requires further review is related to the resume of audit procedure after the Committee`s participation. The Committee's review is made before the tax audit is concluded, this implies that SUNAT, at the time of issuing the requirement, must communicate its conclusions indicating the observations and infractions on operations that it had previously requested the taxpayer to support. Therefore, it is not possible to resume the tax audit process after the Committee’s intervention to question or review any additional aspects that had not been considered before the participation of the Committee.