The Peruvian Government has enacted Legislative Decree 1663, amending the Income Tax Law with regard to valuation methods that apply to transfers of securities between related parties.

Background

Peruvian legislation establishes a set of rules governing the fair market value (FMV) of securities transferred in a non-related-parties scenario. According to this set of rules, the FMV would be the higher of the transaction value or the value determined according to any of the following methods:

• Quotation value — when shares are listed in any stock exchange
• Discounted cash flow — when the entity under analysis foresees future flows or has elements such as licenses, authorizations or intangibles that allow future flows to be anticipated
• Equity value — based on the last balance sheet closed within 90 days prior to the disposal
• Appraisal — established within the six months prior to the date of the transfer

For transactions entered into between related parties, the FMV would have to be assessed according to transfer pricing provisions; however, there has been no specific set of rules governing this specific type of transaction.

Legislative Decree 1663

On 24 September 2024, the Executive enacted Legislative Decree 1663, amending the Income Tax Law to incorporate a set of rules governing the FMV of non-listed securities transferred in a related-parties scenario. The methods to be used, if applicable to the specific case, are the following:

1. Discounted Cash Flow Method
2. Comparable multiples
3. Equity value
4. Appraisal

The Discounted Cash Flow Method will not be applicable if one of the following requirements is met:

• The transferor owns less than 5% of the Peruvian entity's shares.
• The accrued net income of the Peruvian entity in the previous tax year does not exceed 1,700 Peruvian Tax Units (approximately US$2.3m).

How FMV has been determined through the application of any of these methods must be supported in a technical report, containing information that will be established in yet-to-be enacted regulations and submitted to the Peruvian Tax Authority when expressly requested during a tax audit.

Legislative Decree 1663 will enter into effect on 1 January 2025.