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Commercial Promotions: Income Tax Implications of Bonuses and Promotions Expenses

Companies often use bonuses or commercial promotions for customers to maintain or increase sales. To ensure that these strategies, which are intended to promote sales, are also successful, it is important that the promotion is treated correctly in terms of income tax.

The deduction of expenses for tax purposes is governed by the causality principle established in article 37 of the Income Tax Law. This states that the necessary expenses to generate or maintain taxable income are deductible, as long as they are not prohibited or limited by law.

Although this precept could be interpreted as only those expenses directly linked to the generation of taxable income or the maintenance of the source, the Tax Court has interpreted the principle of causality as the relationship of necessity that must be established between expenses and the generation of income or maintenance of the source. In Peruvian legislation, this is a broad notion, as it allows the deduction of expenditures that do not hold such a relationship directly (Tax Court resolutions nos. 814-2-1998 and 710-2-1999).

The necessesity of an expenditure is therefore dependent on the circumstances and characteristics of each business. Concepts that are normal for the commercial activity of the company, such as, for example, bonuses or promotional expenses (or marketing), which allow the continuity of the business or its improvement, even if they do not automatically or directly derive a taxable income, comply with the causality requirement, explain the experts from Ecovis.

Here it should be said that both commercial promotions and bonuses represent incentive instruments created with the purpose of, within a short time, increasing demand and making consumption more attractive, which ultimately leads to higher sales. However, in the case of a bonus, the intention is to deliver goods to customers who maintain a business relationship with their supplier.

In terms of the goods that taxpayers can deliver to their clients, article 20 of the Income Tax Law stipulates that the total net income resulting from the disposal of goods is calculated by deducting gross income from returns, bonuses, discounts or similar in line with market standards. In order to avoid tax penalties in the event of a possible SUNAT audit (Superintendencia Nacional de Aduanas y de Administración Tributaria/the organisation which enforces customs and taxation in Peru), taxpayers must maintain a duly documented bonus policy that proves that the goods meet the relevant conditions.

Moreover, the Income Tax Law (subsection q of article 37) also allows for the deduction of expenses for the representation of the business to a sum not exceeding 0.5% of gross income, with a maximum limit of 40 tax units (according to Supreme Decree no. 298-2018-EF, the tax unit value for 2019 is 4,200 Peruvian sol, PEN). In turn, the second paragraph of article 21.m states that travel expenses and disbursements directed at the bulk of real or potential consumers, such as advertising expenses, are not deemed to be representation costs and are therefore not subject to the above-mentioned limit.

Therefore, the expenses relating to goods that taxpayers may deliver to real or potential customers and the general public in order to create the necessary publicity to increase their sales would also be deductible and not be subject to limitation. This is precisely because such expenses constitute an essential tool for generating higher income.

Through a number of cases, the Tax Court has also established that expenses must be recorded not only with receipt of payment, but also with additional documentation and information that proves the legitimacy of the expense. Any assets granted by the taxpayer should be based on a commercial policy (approved by management or those responsible) which sets out the appropriate conditions. Similarly, where goods are delivered, there should be supporting documentation detailing the goods delivered and their receipt by the customer (i.e. delivery note, receipt etc.).

For further information please contact:

Gary Salazar Paz, Senior Partner, Tax Laywer and Accountant, ECOVIS Peru, Lima, Peru


Ecovis is a leading global consulting firm with its origins in Continental Europe. It has over 7,500 people operating in over 75 countries. Its consulting focus and core competencies lie in the areas of tax consultation, accounting, auditing and legal advice.

The particular strength of Ecovis is the combination of personal advice at a local level with the general expertise of an international and interdisciplinary network of professionals. Every Ecovis office can rely on qualified specialists in the back offices as well as on the specific industrial or national know-how of all the Ecovis experts worldwide. This diversified expertise provides clients with effective support, especially in the fields of international transactions and investments ? from preparation in the client?s home country to support in the target country.

In its consulting work Ecovis concentrates mainly on mid-sized firms. Both nationally and internationally, its one-stop-shop concept ensures all-round support in legal, fiscal, managerial and administrative issues.

The name Ecovis, a combination of the terms economy and vision, expresses both its international character and its focus on the future and growth.

Posted by on 11. May 2020. Filed under Internet. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

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