The amendments incorporate new methodologies for determining the fair market value (FMV) of Peruvian shares in direct transfers.

On March 26, 2022, Peru's President enacted Legislative Decree 1539, amending the Income Tax Law to modify the FMV rules for direct transfers of Peruvian shares.

Background

On October 27, 2021, Peru's President asked Congress for the power to enact tax measures. On December 27, 2021, the Congress approved the President's request to enact different tax measures, including new FMV rules applicable to securities. For information on the approval of the President's request to enact certain tax measures, see Tax Alert 2022-0004.

Legislative Decree 1539

Currently, the FMV of non-listed Peruvian shares in direct transfers is the higher of the transaction value or the equity value (based in the book value) of the Peruvian shares being transferred.

Legislative Decree 1539 incorporates new methodologies for determining the FMV of non-listed Peruvian shares for direct transfer purposes.

The new set of rules establishes that the FMV will be the higher of the transaction value or the value determined according to one of the following methods:

• Discounted cash flow (DCF) method: A DCF valuation will apply if the entity under analysis anticipates future cash flows or has certain items, such as licenses, authorizations or intangibles, that make future cash flows a possibility. The DCF method will not apply in the following cases: (i) the transferor owns less than 5% of the Peruvian entity's shares; or (ii) the net income of the Peruvian entity accrued in the previous tax year does not exceed 1,700 Peruvian Tax Units (approx. USD 2m).
• The equity value: This method applies if there is no predictable expectation of future cash flows. Specific rules apply for determining the equity value for certain scenarios.

In addition, Legislative Decree 1539 establishes rules for determining the FMV of securities that are not shares. For such purposes, the FMV will be determined according to the following methods:

• Equity value
• Other methods that will be established through regulations and will take into account the type of securities.

Regulations to implement the provisions of Legislative Decree 1539 must be issued within a period of no more than 120 calendar days of the legislative decree's effective date.

Legislative Decree 1539 will be effective January 1, 2023.

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