Tax Treaty Case Law around the Globe 2024

35.1. Introduction

The case under examination, Tax Court Resolution (RTF) N° 08835-12-2022, adjudicated by the Peruvian Tax Court, delves into a transaction wherein a Panamanian resident relocated to Canada and subsequently sold shares in a Peruvian company.

The sale of shares in the Peruvian company involved a withholding for Peruvian Income Tax by the buyer, a Peruvian Company, due to the seller’s lack of a proper certificate of residence in Canada at the time of the transaction. Afterwards, the seller invoked article 13.6 of the Peru-Canada DTA, which mirrors article 13.5 of the OECD Model, seeking a refund of the withheld income tax from the Peruvian Tax Administration.

The Peruvian Tax Administration denied the refund based on two main considerations: (i) the Canadian company had not paid any tax in Canada on the sale, so there was no double taxation to resolve and therefore the treaty would not apply; and, (ii) the operation constituted treaty shopping since the shareholder was initially a resident of Panama and only changed his residence to Canada to avoid the Peruvian Income Tax.

The seller appealed before the Peruvian Tax Court, which decided in its favour indicating that the ...