April 28, 2020
Peru amends rules on indirect transfers of shares
On 21 April 2020, Peru’s Executive Power enacted Supreme Decree 085-2020-EF, amending the Peruvian Income Tax Law regulations and establishing new rules for determining the market value of shares in indirect transfers of Peruvian shares.
Previously, to determine the market value of the shares of the resident entity and the nonresident entity in indirect transfers of Peruvian shares, the entities had to determine the:
Supreme Decree 085-2020-EF
When determining the market value of shares of the resident entity and the nonresident entity in indirect transfers of shares, either for transactions with related or unrelated parties, Supreme Decree 085-2020-EF requires the following methods to be followed:
Quotation value: For shares listed on the stock exchange, the market value will be the quotation value.
Discounted cash flow (DCF) method: For shares not listed on the stock exchange, the market value will be determined under the DCF method, provided the entity foresees that it will have future cash flows or has elements such as licenses, authorizations or intangibles that will provide cash flows in the future. If the entity has several business units, a projection must be made for each business unit.
If there is no expectation of debt linked to the economic activity or business unit of the entity, the entity will apply the DCF method; otherwise the entity’s shareholder will apply the DCF method.
For the DCF method, the following rules must be considered:
As supporting documentation of the DCF method, the entity must have a technical report containing at least the following information: (i) an executive summary; (ii) analysis of the sector in which the entity operates, indicating the main factors that could impact its value; (iii) analysis of the entity; (iv) valuation of the entity; and (v) annexes, including financial statements.
Equity value: If the prior methods do not apply, the market value is calculated on the basis of the issuing entity’s last audited balance sheet closed within 90 days before the disposal of the shares.
Residual method: If the previous methods do not apply, the fair market value will be one of the following:
Supreme Decree 085-2020-EF went into effect on 22 April 2020.
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