⚖ A Peruvian Tax Court decision issued on December 1st, 2023, and originally shared by Roberto E. Polo Ch. addresses the differences between royalty payments and the price paid for software licenses for tax purposes. The full PDF of the court decision in Spanish is attached to this post.
The case revolves around payments for software licenses made by a Peruvian company to non-resident companies. While the taxpayer claimed that these are not qualifiable as royalties (because the Peruvian company did not acquire rights over the IP, the seller never shared the source code of the IP, and the purchase price was entirely associated with the software licenses themselves), Peruvian tax authorities claimed that they are royalties and should therefore have been subject to a Withholding Income Tax of 30%.
The court concluded that because the taxpayer did not enjoy rights over the “economic exploitation” of the IP, their payments to the non-resident sellers for the software licenses could not be qualifiable as royalties. An interesting aspect of the taxpayer’s arguments in this case is that they relied – inter alia – on the Commentary to Article 12 of to the OECD – OCDE Model Convention (Paragraph 14.4, which differentiates royalties for payments made by distributors).
If you are interested in learning more about the differentiation between royalties and payments made in the context of software distribution agreements in LatAm, here are some articles recommended by the Latin American Tax Policy Forum (LATPF):
✅ “Tributación de los Softwares en Operaciones Transfronterizas: Ley sobre Impuesto a la Renta y Convenios” (“Taxation of Sofware in Cross-border Operations: Income Tax Law and Tax Treaties”), by Francisco Ossandón Cerda. Published in 2021 by Universidade do Chile. Available in Spanish at: https://shorturl.at/ejxMO
✅ “A Aplicação dos Acordos de Bitributação aos Negócios da Economia Digital: As Visões do Brasil, da OCDE e da ONU sobre Software e Serviços Técnicos” (“The Application of Double Taxation Agreements to Digital Economy Businesses: The Views of Brazil, the OECD and the UN on Software and Technical Services”), by Paulo Victor Vieira da Rocha. Published in 2018 as part of the book “Tributação da Economia Digital”, coordinated by Renato Faria, Ricardo Maito and Alexandre Luiz Moraes do R Monteiro. Available in Portuguese at: https://shorturl.at/iJM39
✅ “Problemática del régimen tributario aplicable a las rentas derivadas del software en Colombia” (“Problems of the tax regime applicable to income derived from software in Colombia”), by Julio Roberto Piza Rodríguez and Mary Claudia Sánchez. Published in 2009 by Universidad Externado de Colombia. Available in Spanish at: https://shorturl.at/AILMW 🌎
