June 13, 2023
Peruvian Tax Authority clarifies methodology for determining FMV of listed/unlisted shares in indirect disposal scenario
On 25 May 2023, the Peruvian Tax Authority issued Ruling 64-2023, addressing how to determine the fair market value (FMV) of shares in an indirect transfer scenario if the shares of the nonresident entity are listed on a stock exchange and the shares of the Peruvian company are not listed (or vice versa).
For purposes of determining the FMV of the foreign shares and the Peruvian entity's shares transferred in an indirect transfer scenario, the following methodologies must be applied in numerical order (i.e., if number 1 does not apply, move on to number 2, and so on):
To determine whether an indirect transfer is triggered as a taxable event in Peru, the following procedure must be used:
The methodologies outlined above did not seem to address (i) situations in which the nonresident entity shares are listed on a stock exchange and the Peruvian shares are not listed or vice versa, or (ii) whether it was possible to combine two different FMV methodologies.
According to Ruling 64-2023, the Peruvian Tax Authority concluded that in cases of indirect transfer of shares, the FMV methodology to be used will depend on the particular characteristics of the entity under analysis. This means that if the shares of the entity are listed, the FMV will be determined by applying the highest quotation value methodology; meanwhile, for the entity whose shares are unlisted, the other valuation methodologies provided in the Peruvian Income Tax Law (discounted cash flow, equity value or appraisal, as appropriate) will be come into play.
Therefore, it will be possible to combine two different FMV methodologies for purposes of the procedure to determine whether an indirect transfer is triggered, along with the associated tax liability.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Asesores Empresariales S.Civil de 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
Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor