Regulations of the Income Tax Law are modified: now the SOFR reference rate will be used

The Ministry of Economy and Finance (MEF) published, this Thursday, June 29, the Supreme decret No. 137-2023-EF that formalizes the modification of the regulation of the Income Tax (IR) law.

In this way, our country will begin to use the SOFR (Secured Overnight Financing Rate) as the predominant preferential rate for purposes of collecting income tax on interest generated by credits granted by companies not domiciled in the country.

The legal norm indicates that, from Friday, June 30, the SOFR rate 30-day average plus four points will replace the LIBOR (London InterBank Offered Rate) plus four points as the predominant preferential rate for the purpose of applying the 4.99% rate provided for in subparagraph a) of article 56 of the Income Tax Law, regardless of the place where the credit comes from, the currency or the agreed expiration term.

This change occurs taking into account that, As of July 1, said referential rate will no longer be published.

What is the SOFR reference rate?

The SOFR is published daily by the Federal Reserve Bank of New York based on the loans to a day (overnight) with guarantee of the bonds of the Treasury of the USA. On June 22, that rate was 5.05%.

Let us remember that the MEF has previously approved replacing the LIBOR rate with the SOFR in financing operations agreed with foreign entities. That was the case with the debt to the Development Bank of the Federal Republic of Germany (KfW).

The cessation of the use of the LIBOR rate in relation to interest rates began after the financial crisis of 2008 and 2009when the Financial Stability Board—an international body that supervises and makes recommendations for the international financial system—pronounced on the LIBOR rate, causing the regulatory entities of developed countries to decide to gradually replace it.