In several cases involving the audit of mining or hydrocarbon sector companies which have entered into turnkey agreements, like Engineering, Procurement & Construction (EPC) or Engineering, Procurement, Construction & Management (EPCM) agreements, the Tax Administration (SUNAT) has adjusted the declared value of goods imported in connection with said agreements in those cases where payments have been made for engineering services provided abroad, related to the design of a plant .

Let us recall that in order to determine the value of goods for customs purposes, the price actually paid or payable for said goods is to be used as a basis; that is, the price shown on the commercial invoice supporting each import (First Method of Customs Valuation). These amounts could increase if SUNAT detects the existence of additional payments related to the goods in question.

In the specific case of turnkey contracts, SUNAT believes that a plant may be considered a good and if payments have been made for the engineering design required for its construction, then said payments should be added to the taxable base of the equipment comprising the Plant. This stance is based on SUNAT’s interpretation of Article 1 of the WTO Valuation Agreement and Case Study 1.1.

Although the determination of the declared value of the goods is of utmost importance for customs purposes because customs duties and other import taxes will be calculated based on said value, it is equally important for importers to be absolutely clear about the items to be declared as part of the value of the imported goods because it will have an impact on the determination of the final cost of the goods.

As a result, there was a discrepancy between SUNAT and importers. In view that there was no clear rule in place to adjust the declared value of engineering services, the tax was being charged twice. As a matter of fact, on the one hand, an 18% VAT rate was charged for the use of engineering services in Peru and, on the other hand, the value of said services was adjusted for customs purposes and said adjustment resulted in higher tariffs and VAT being imposed on the import of equipment.

That’s how, through the publication of Law N° 30264 pursuant to which several tax measures were adopted and the VAT law was modified - the import of goods under turnkey contracts was added as a NON-taxable item in those cases where the non-domiciled taxpayer undertook to carry out all the necessary steps, from the design to the commissioning of the project .

Within this context, we should point out that the above law has managed to resolve the double taxation problem faced by turnkey projects with respect to VAT, for engineering services carried out abroad; however, talks are still ongoing regarding the admissibility of these adjustments which generate differential taxes (customs duties) and fines equivalent to up to 200% thereof, an assumption which is still being discussed in the administrative and judicial fields.