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Eight years after enactment, and after being suspended due to questioning by the political and business sector, Peru can now apply the General Anti-Tax Avoidance Rule to detect and recover the millions of soles in taxes that some companies hide in tax havens. This rule, also known as Rule 16, is in force since December 2019, and the National Tax Authority (SUNAT) has a team of inspectors and reviewers dedicated to identifying strategies these companies designed —with the aid of auditors, accountants and lawyers— to reduce or avoid paying their taxes.

Last May, the Ministry of Economy and Finance (MEF) published Supreme Decree 145-2019 to define the rule application parameters, and specified seven types of operations that SUNAT may consider suspicious transactions, provided they were used to deceive the State. One of these are the economic transactions carried out with and from tax havens, territories characterized by their unwavering bank secrecy, a minimal or no-tax demand, and for hiding their customer’s information.

According to the decree, it will be possible to evaluate the use of Rule 16 when a company is identified to have committed "acts or operations with subjects residing in countries or territories with low or no taxation, or with subjects qualifying as permanent establishments, located or established in such jurisdictions, or with subjects who receive income, profits or revenue through these".

SUSPECT. Sunat has a team of reviewers to check cases of tax avoidance. The focus will be on companies with headquarters in tax havens.

Photo: Andina.

 

That is to say, SUNAT experts may scrutinize Peruvian firms which enter financial or commercial transactions with front companies or persons based in tax havens.  The opacity maintained by such jurisdictions has allowed the flow of money, mostly illicit, in cases such as the Panama Papers or the Paradise Papers, according to the research led by the International Consortium of Investigative Journalists (ICIJ).

The Offshore of the Top Companies

In the case of Peru, OjoPublico identified that the seven companies with the highest turnover in the food, pharmacy, mining, machinery and logistics sectors have subsidiaries or are direct subsidiaries of companies registered in tax havens. These companies belong to the Romero, Glencore, Intercorp, Ferreycorp, Scotiabank and Trafigura groups, which have equity ties with companies incorporated in the British Virgin Islands, Bermuda, Panama, The Bahamas and the Cayman Islands, territories considered by SUNAT as non-cooperating or with low or zero taxation.

According to Peru Top Publications financial data, one of the flagships of the Romero Group —run by banker Dionisio Romero Paoletti— is Alicorp, leader in the food industry with 45 brands and products distributed in the country under the names of Primor, Capri, Alacena, Don Vittorio, Blanca Flor, Negrita, Casino and others, and that in 2018 had a turnover of not less than S/4.1 billion.

Since January 2019, Alicorp owns Tecnología Aplicada S.A, a company incorporated in the British Virgin Islands, controlling 98.9% of the social capital of Intradevco Industrial S.A, which entered the market with well-known brands of personal toiletries and household cleaners such as Sapolio, Patito, Dento, Aval, Geomen, and others. The shareholding structure of these companies shows the direct relationship of the food sector giant with this offshore subsidiary, whose operations should appear in the annual financial statements to be submitted to SUNAT in the next few weeks as part of their annual income tax declaration.

BRITISH VIRGIN ISLANDS. Alicorp is the main company of Romero Group and on of the most profitable. The purchase of Sapolio allowed him to have a headquarters in the British Virgin Islands.

Photo: La República

This is not the first time that Alicorp conducts transactions in the British Virgin Islands. In 2006, they purchased 100% of Farmington Enterprises Inc. equity, a company incorporated and domiciled in the same tax haven and owner of the social capital of Molinera Inca S.A., a flour producer, as stated in their last annual report.

The Romero family also has shareholding interest in the Credicorp Group, a holding operating in the financial and insurance market, and whose main source of income is Banco de Credito del Peru (BCP), with an annual turnover of more than S/8 billion. Grupo Crédito S.A. owns 97.7% of BCP shares and, in turn, depends 99.9% on Credicorp Ltd., a firm registered in Bermuda, a British offshore territory located in the Atlantic.

Credicorp Ltd controls BCP and other 55 subsidiaries from Lima, but for the authorities, their headquarters are in said tax haven, specifically in Clarendon House, a building occupied by Conyers Dill & Pearman law firm. In July 2019, ICIJ presented 200,000 emails and contracts prepared by this legal team to help large multinationals to avoid taxes corresponding to African countries, and transfer them to the coffers of western corporations and African oligarchs.

BERMUDA. Credicorp Ltd is registered in the Clarendon House building, in Bermuda. The Conyers law firm, involved in tax investigations in Africa.

Captura: Google Earth.

Credicorp parent company also owns 100% of the shares in nine other holdings incorporated exclusively in offshore territories: The Bahamas, British Virgin Islands, Panama and, specially, the Cayman Islands, a jurisdiction leading the 2020 Financial Secrecy Index due to their greater degree of fiscal opacity.

In the book Los doce apóstoles de la economía peruana (The Twelve Apostles of the Peruvian Economy), Francisco Durand recalls the close political relationship kept in the 90s by the chairman of the board, Dionisio Romero Seminario, with the presidential adviser Vladimiro Montesinos Torres to obtain financial measures in favor of Alicorp and BCP.

“Part of the political connections system [of the Romero Group] was based on the financial support they provided to their preferred parties, usually those most likely to win the elections," the sociologist and analyst of power groups states in his book. With the exit of the Fujimori regime and in the midst of summons by the Congress and the Judiciary to clarify their links with the Fujimori regime, the company was handed over to his son, Dionisio Romero Paoletti.

OFFSHORE HEADQUARTER. This is part of the conglomerate of companies that the Credicorp Group manages. Its parent Credicorp Ltd manages nine companies in tax opaque territories.

Graphic: SMV.

In November 2019, the heir accepted before the prosecutor in the Lava Jato case, José Domingo Perez, that he paid US$3.6 million in cash to finance Keiko Fujimori's campaign in 2011. According to his confession, the money came from Credicorp through 17 transfers from accounts in the Atlantic Security Bank, the holding company kept in the Cayman Islands, and ended at BCP headquarters, in Lima, without raising any suspicion in the Superintendency of Banking and Insurance (SBS).

The influence of the Romero Group also reaches out to the National Confederation of Private Business Institutions (CONFIEP), the association that for several years tried to influence the application of the Anti-Tax Avoidance Rule, and that was chaired on three occasions by managers of group companies. The last one was Martín Pérez Monteverde, representative of Confiep between 2015 and 2017, and former director of Minka, Ransa and Credicorp. The Prosecutor's Office confirmed that he was the link with Dionisio Romero to deliver the campaign contribution to Keiko Fujimori.

 From the Andes to the Cayman Islands

In addition to Alicorp and Credicorp, the third company with the highest turnover in our country is Compañía Minera Antamina S.A., a mining complex that produces copper, zinc, molybdenum, silver and lead concentrates, and whose owners are Glencore (33.7% of shares), BHP Billiton (33.75%), Teck (22.5%) and Mitsubishi (10%). According to their Sustainability Report, their net sales reached S/11.5 billion in 2017.

Glencore, the giant Swiss company with multi-million dollar investments in metals, energy and agricultural products around the world, participates in this Peruvian operation through its subsidiary Noranda Antamina, incorporated in another tax haven, the Cayman Islands. In 2000, the Peruvian State entered legal stability agreements with Noranda to facilitate their participation in the Peruvian mining company, and these documents indicate that the company is based in One Capital Place in George Town, the main city in this British territor.

 

CAYMAN ISLANDS. Noranda Antamina is a subsidiary of Switzerland's Glencore and has a 33% stake in the mining operation in Áncash. Noranda was incorporated in the Cayman Islands.

Photo: Antamina.

Remember that Glencore headquarters concealed a network of offshore companies which was unraveled in 2017, with the leaking of documents related to Appleby law firm, in the Paradise Papers investigation. The revelation focused on covert operations in the Congo and Australia, and in a shipping company, but the information accessed by ICIJ shows more than 100 connections among people and companies related to this group and different tax havens.

One of these is Glencore Investments Antamina Ltd, incorporated since 2008 in Canon’s Court, on Victoria Street, Bermuda, the same location as Appleby law firm. Glencore Finance Ltd., one of the headquarters of the company, was also incorporated in this island, according to the annual report of the Swiss headquarters. It should be noted that, their official documents do not give details of their global corporate structure, or the headquarters of all their subsidiaries and affiliates, but only mention the country of incorporation of their headquarters.

In Peru, Glencore Investments Antamina Ltd. is registered with Sunat, and their legal representative is Itamar Machado de Magalhaes, a Brazilian citizen who runs the business in the country. The address declared before the tax authority is Edificio República, at Los Delfines 159, Surco, where Glencore headquarters are located in Peru.

CONNECTIONS. The Paradise Papers, the ICIJ leaded a global investigation and identified numerous Glencore offshore connections. One of them is from Glencore Investments Antamina, in Bermuda.

Capture: ICIJ

Compañia Minera Antamina S.A. answered the questions OjoPublico asked, through a questionnaire sent by email. In the communication, they confirmed the offshore origin of their headquarters, Noranda Antamina, although they say it is no longer operating there. “Originally, the holder of 33.75% of Antamina shares was Noranda Antamina Ltd., domiciled in Grand Cayman.   Then in 2008, this company moved their domicile to Peru and adopted the trade name of Noranda Antamina SRL," they indicate in the text.

Regarding their link with the other trade name: Glencore Investments Antamina Ltd., based  in Bermuda, mentioned that although the Peruvian mining company "has four shareholders with different holdings," these are "a joint venture, that is to say, a partnership, because none of them has control over the company."

The Favorite: Panama

The Peruvian group Intercorp, owned by Carlos Rodríguez Pastor, has multiple investments in the financial, health, commerce and education sectors, but the highest income is provided by Inretail Pharma S.A., a chain of pharmacies operating throughout Peru under the trade name of Inkafarma. In 2018, this business had a turnover of S/5.2 billion.

Inretail Pharma S.A. is the parent company of 15 pharmaceutical companies and distributors of medicines in Peru, Bolivia, Colombia and Ecuador, and in our country they have 83% of the market, as detailed OjoPublico in a previous report. This company is a subsidiary of PF Inretail Consumer, which in turn depends 100% on Inretail Peru Corp, a company incorporated in Panama.

PANAMA. The European Union and Tax Justice Network include Panama as one of the countries with the highest fiscal opacity. Intercorp, Ferreycorp and Trafigura have companies registered in this country.

Photo: Elizabeth Salazar

This country is considered an opaque territory by SUNAT, the Tax Justice Network and, recently, the Council of the European Union, which updated their list of tax havens and included Panama again, after two years. “These countries or territories have failed to comply  with the fiscal reforms to which they had committed before the European Union within the agreed deadline," indicated officials in a statement issued on February 18.

Inti Inversiones Interamericanas, a direct subsidiary of the Peruvian Ferreycorp, operates in the same jurisdiction. This company is fifth in our ranking for their high turnover, and distributes capital goods, services and support. Their 2018 revenue reached S/5.2 billion. Inti Inversiones Interamericanas was incorporated in Panama in 2010, as part of a holding company to control the Group subsidiaries in Central and North America.

In this same country, we find Grupo Trafigura, a global corporation with headquarters in Singapore that stores, markets, and transports raw materials, and whose subsidiary, Trafigura Peru S.A.C., produced S/5.07 billion in annual sales. One of its subsidiaries is Puma Energy Bahamas, incorporated in the Tower Financial Center in Panama.

Finally, the seventh position is held by Scotiabank Peru, member of the Canadian conglomerate by the same name, and is considered the third largest bank in Peru. According to Superintendency of Securities Market (SMV) reports, 98.05% of its share capital is in the hands of Scotia Peru Holdings S.A., whose  36.9% is controlled by the offshore BNS International, incorporated in Bahamas. The financial company that appeared following Banco Sudamericano and Banco Wiese Sudameris merger in 2006 is disputing S/400 million with Sunat for tax interests accumulated in the last decade which they refuse to pay. The case has reached the Constitutional Court, in a process that should be resolved in the next few days.

BAHAMAS. Scotiabank, the third largest bank in Peru that operates with Canadian capital, has shareholding links with BNS International, created in the Bahamas.

Graphic: SMV

Audit for OECD Accession

Sunat’s National Intendant of Strategies and Risks, Palmer de la Cruz, pointed out to OjoPublico that part of their control actions will be to cross information with other countries to gather sufficient elements to apply Rule 16. As explained by de la Cruz, Peru has entered information exchange agreements with eleven jurisdictions  to expedite this process, and has adhered the Convention on Mutual Administrative Assistance in Tax Matters (CAAMMF) to have access to similar reports in other 100 territories.

“This process demands mutual transparency and its main objective is prevention. We have published five risk outlines for companies to learn what methods, among others, will be considered artful. While there is an economy of choice, the goal of the Anti-Tax Avoidance Rule is to deter and audit the artificial operations created exclusively to circumvent payment," he added. Sunat estimates that tax avoidance generates tax losses in Peru of approximately S/15.9 billion a year.

The Organization for Economic Cooperation and Development (OECD) brings together the world's major economies and promotes the reduction of tax avoidance by controlling transnational corporations and their affiliates. The Peruvian government wants to become a member, and one of the requirements is to prove that the country if fighting against this irregular practice.

 

EQUIPMENT. The rule against tax avoidance was frozen due to political and business pressure. Sunat now has the legal tools and equipment to apply it.

Photo: Elizabeth Salazar

The creator of Rule 16 and MEF consultant on tax policy, Eduardo Sotelo, argues that the tax system in certain jurisdictions is designed in such a way that it  facilitates creating schemes that erode tax bases and affect the collection of other States.  A general Anti-Tax Avoidance Rule is a tool to help tax administrations to control this kind of strategies, such as the aggressive tax planning by some multinational companies.

“The distortions generated by the proliferation of low-tax countries are known worldwide. Although their existence and the decision to go to them is, supposedly, legitimate, even beyond fiscal reasons what we now today is that multinational subsidiaries incorporated in those territories declare in them a margin of profits or income that doubles the average of their groups regarding their assets. This is precisely opposite to what tax systems look for: that economic benefits pay taxes in the jurisdiction where the economic activity generating more value takes place," Sotelo added.

Rule 16 establishes the joint liability of the board members or legal representatives who approve rigged taxation schemes. If the offense is confirmed, by intent or gross negligence, they will have to respond with their own estate to cover the debt, and this includes their participation in the same company. The measure is already forcing managers to have a direct participation in fiscal decision-making that was previously outsourced to law firms.

 

Translation: Sandra Capcha