The Income Tax Law (LIR) on Other Valuation Methods in the Transfer Pricing Rules is amended
Through Legislative Decree No. 1663, the Income Tax Law is amended in connection with the application of Transfer Pricing valuation methods. This amendment, which will enter into force on January 1, 2025, specifies the circumstances under which methods other than those already established may be applied:
- The prices and amounts of the established consideration correspond to the value that would have been agreed upon under equal or similar conditions in accordance with the methods already established by law.
- The other method used is the most appropriate to reflect the economic reality of the transaction.
For shares or equity interests not listed on the Stock Exchange or other centralized trading mechanisms, it is specified that the following methods may be used:
- The discounted cash flow method.
- The multiples method.
- The equity value method.
- Appraisal.
- Multiperiod Excess Earnings Method (MPEEM).
Notwithstanding the foregoing, the amendment does not restrict the use of other methods for different transactions, but always considering that: it is the most appropriate method to reflect the economic reality of the transaction and the value of the prices is established in a manner similar to the methods already stipulated by the Law.
Regarding the Cash Flow Method, it will not be applicable if:
- The transferor holds less than five percent (5%) of the shares or interests representing the paid-in capital of the legal entity whose shares or interests are being transferred; or
- The net income accrued in the previous tax year by the issuing company whose shares or interests are being transferred does not exceed one thousand seven hundred (1,700) Tax Units (UIT).
Finally, it is considered that, to prove the method used, the taxpayer must have a technical report containing minimum information in accordance with the Regulations.
At Thorne, Echeandía y Lema Abogados, we offer Transfer Pricing Tax Advisory Services with our tax and accounting team. We are available to answer any service proposal requests, as well as for questions, further information, or clarifications.
Do not hesitate to contact us:
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