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January 6, 2023
2023-0047

Peruvian Government amends Income Tax Law Regulations for implementing FMV rules for valuation of securities

  • The Peruvian Government published Supreme Decree 326-2022 amending the Peruvian Income Tax Law Regulations with regard to fair market value (FMV) of securities. The new FMV rules became effective on 1 January 2023.

On 29 December 2022, the Peruvian Government enacted Supreme Decree 326-2022 amending the Income Tax Law Regulations with regard to the FMV rules applicable to the transfer of securities.

Background

On 26 March 2022, Peru's President enacted Legislative Decree 1539 amending the Income Tax Law to modify the FMV rules for direct transfers of Peruvian shares. Legislative Decree 1539 incorporated new methodologies for determining the FMV of securities for direct transfer purposes. According to the new set of rules effective as of 1 January 2023, for transactions between both related and non-related parties, the FMV will be the higher of the transaction value or the value determined according to:

  • Quotation value for securities listed on the Stock Exchange, provided that such value corresponds to similar or comparable conditions. For this determination, the Income Tax law deferred to the Regulations the definition of the circumstances in which transactions are not executed under similar or comparable conditions
  • Discounted Cash Flow method
  • Equity value
  • Appraisal

As Regulations for the new FMV rules were yet to be issued, the Peruvian Government recently enacted Supreme Decree 326-2022 amending the Regulations of the Peruvian Income Tax Law regarding the FMV of securities. The new FMV rules became effective 1 January 2023.

Supreme Decree 326-2022

Supreme Decree 326-2022, amended the Regulations of the Peruvian Income Tax Law establishing the following:

Quotation value

For securities listed on the Stock Exchange, the quotation value will be: (i) For stock market disposals, the quotation value registered at the moment of the sale; (ii) For OTC disposals, the average value of opening and closing registered on the Stock Exchange at the moment of the sale.

This methodology should not be used when the difference between the quotation value and the transaction value affects the price of the securities or cannot be eliminated via reasonable adjustments. Also, circumstance should be taken into account such as the contractual terms, participation in dividends or economic rights, and transfer of control, among others.

If the quotation value methodology does not apply, the FMV should be the higher value between the transaction value and the Discounted Cash Flow (DCF).

DCF value

The DCF valuation must consider the following:

  • Both the DCF at the level of the Company or the DCF at the level of the Shareholder may be used. DCF at the level of the Shareholder when a debt linked to the economic activity or business unit of the Company is expected. Otherwise, if there is no debt expected, the DCF at the level of the Company will be applicable.
  • The cash flow period must be at least 10 years. If the company has a shorter duration, the balance of the duration will be considered.

The taxpayer must prepare a technical report as supporting documentation of the DCF value. It is important to note that formerly this DCF methodology was already applicable for indirect transfers but now it is applicable for direct transfers as well.

Equity value

If the quotation value and DCF methodology cannot be applied, the equity value shall be used. The equity value is determined according to the following:

The equity value of the Company is calculated based on the last audited balance sheet closed within 90 days prior to the transfer of the shares, in the case of entities that are under the control of the Peruvian Securities Exchange Authority.

If the above is not applicable, the equity value of the Company must be calculated based on one of the following:

  • The last balance sheet closed within 90 days prior to the transfer of the shares, increased by the monthly weighted average market lending rate in Peruvian currency.
  • The appraisal value which is established within the six months prior to the sale of the shares.

Supreme Decree 326-2022 is effective as of 1 January 2023.

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For additional information with respect to this Alert, please contact the following:

Ernst & Young Asesores S.C.R.L, Lima

Ernst & Young LLP (United States), Latin American Business Center, New York

Ernst & Young LLP (United Kingdom), Latin American Business Center, London

Ernst & Young Tax Co., Latin American Business Center, Japan & Asia Pacific

 

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