The Risks of Engaging with an Entity with No Operating Capacity
The Risks of Engaging with an Entity with No Operating Capacity
In a country with such high levels of informality, it is anecdotic that the recent list of Entities with No Operating Capacity (ENOCs) published by the Peruvian Tax Authority (SUNAT) currently includes only three companies. One might expect that, with definitive resolutions assigning such status, more companies would have already been identified. This phenomenon highlights the need for enhanced monitoring and control by tax authorities to detect and penalize those entities operating outside the bounds of legality, thereby harming the formal economy and fair competition.
It is important to remember that an ENOC is an entity that, even though it issues payment vouchers, lacks the necessary resources to conduct the transactions supported by such documents. Engaging in business with an ENOC may lead to serious tax-related issues for companies, as the transactions performed with an ENOC will allow companies to neither use tax credits nor support costs or expenses for income tax purposes. Consequently, companies that engage with ENOC may face tax audits, financial penalties, and the loss of tax benefits, all of which may significantly affect their financial stability.
SUNAT’s publication of an entity’s ENOC status also has a significant impact on the company classified as such, as it severely damages its reputation and restricts its ability to do business with companies that require proper documentation to claim tax deductions.
To mitigate these risks, businesses must implement additional screening processes before engaging new commercial partners and when dealing with current suppliers. Identifying an ENOC in a timely manner protects a company from tax-related complications. Prevention is key to avoiding the risks associated with ENOCs and maintaining financial and operational stability. Implementing robust due diligence policies and internal controls may help companies mitigate these risks and ensure compliance with legal and regulatory frameworks.
It is important to remember that an ENOC is an entity that, even though it issues payment vouchers, lacks the necessary resources to conduct the transactions supported by such documents. Engaging in business with an ENOC may lead to serious tax-related issues for companies, as the transactions performed with an ENOC will allow companies to neither use tax credits nor support costs or expenses for income tax purposes. Consequently, companies that engage with ENOC may face tax audits, financial penalties, and the loss of tax benefits, all of which may significantly affect their financial stability.
SUNAT’s publication of an entity’s ENOC status also has a significant impact on the company classified as such, as it severely damages its reputation and restricts its ability to do business with companies that require proper documentation to claim tax deductions.
To mitigate these risks, businesses must implement additional screening processes before engaging new commercial partners and when dealing with current suppliers. Identifying an ENOC in a timely manner protects a company from tax-related complications. Prevention is key to avoiding the risks associated with ENOCs and maintaining financial and operational stability. Implementing robust due diligence policies and internal controls may help companies mitigate these risks and ensure compliance with legal and regulatory frameworks.