Through Supreme Decree 085-2020-EF, the rules of Market Value (MV) of the shares or representing participations of the capital for purposes of the Peruvian source income rule for the indirect sale of shares are modified.
In this respect, paragraphs b.1) and b.5) of subsection b) of the last paragraph of article 4°-A of the Income Tax Law Regulations are modified, linked to income from Peruvian sources obtained from the indirect sale of shares or representing participations of the legal entities’ capital domiciled in the country, as well as dividends and other profits distribution forms of a non-domiciled company in the country. Thus, adapting the tax regulations introduced by Legislative Decree N°. 1424 concerning the indirect sale of shares or participation.
In general terms, before the amendment, the MV for shares transferred indirectly was (i) the highest listed value of the 12 months prior to the sale, if the issuer was listed on the stock exchange; (ii) the equity participation value (EPV) according to the audited balance sheet closed prior to the sale if was not listed or (iii) the appraisal value at the close of the fiscal year prior to the sale, if the aforementioned were not applicable.
New Guidelines for Market Value (MV) of Shares or Participations to Determine the Income
In general terms, the market value of shares and representing participations of the aforementioned capital is determined with the amendment as follows:
- The MV will be the highest quoted value for the 12 months prior to the sale if the issuer is publicly traded.
- If the company is not listed, the MV will be determined based on a new method called Discounted Cash Flow Value, which is applied when the issuer has a foreseeable horizon of future cash flow (licenses, concessions, or intangibles), having to file a technical report.
- If the previous process cannot be applied, the MV will be determined according to the EPV method on audited balance sheets.
- If this method cannot be applied, the MV will be the EPV increased by the TAMN (Tasa Activa promedio en Moneda Nacional or Average Lending Rate in Local Currency) and published by the SBS (Superintendencia de Banca y Seguros or Superintendency of Banking and Insurance), provided the “unaudited” balance sheet is used and has been closed within the 90 days prior to the sale.
- Otherwise, the MV will be the appraisal value of the six months prior to the sale.
According to the aforementioned above, the discounted cash flow value has been included for the MV determination of shares or representing participations of the legal entities’ capital domiciled in the country, which the non-domiciled legal entity is the owner and owns the capital of shares or representing participations of the non-domiciled legal entity.
When is the Discounted Cash Flow Method applied?
The Discounted Cash Flow Valuation method will be applied when the legal entity does not meet the conditions to determine the quotation value of the daily opening or closing, provided the legal entity evidences a foreseeable horizon of future flows or has elements such as licenses, authorizations, or intangibles that allow foreseeing the existence of such flows.
If a company had several business units, the referred value will consider the projection made for each business unit that involves a foreseeable horizon of future flows.
If there is no expectation of debt linked to the company’s business unit or economic activity of the company in the discounted cash flow projection, the company’s cash flow methodology will be applied.
Considering this inclusion of the discounted cash flow value, the equity interest value moves to a third place in the hierarchy in the market value determination.
In addition, the precision that the annual balance sheet must have been closed within 90 days prior to the referred sale or issuance, being also audited by an auditing corporation or entity authorized to perform such functions under the provisions of the country they are established to render such services.
What modifications have been established concerning the Taxable Base of the Tax?
Supreme Decree 085-2020-EF modifies subsection b.5), which establishes that for purposes of determining the taxable base of the tax generated in the indirect transfer of shares or participations, such value will be based on the comparison between “the Market Value of shares or representing participations of the non-domiciled legal person capital” and “the Market Value of shares or representing participations of the legal person capital domiciled in the country where sales are performed indirectly” is established that the Market Value of shares or representing participations of the non-domiciled legal person capital shall be the higher one of the transaction values of shares or participations of the non-domiciled legal person and the value determined under the provisions of paragraph b.1) of subsection b) of Article 4°-A of the Income Tax Law Regulations.