Decree No. 1662 aims to amend subsection f) of Article 32-A of the Income Tax Law (LIR) to allow the retroactive application of advance price agreements (known as “rollback”) in some instances.
When the National Superintendency of Customs and Tax Administration (SUNAT) enters into an advance pricing agreement (APA), it may agree that this has an effect on transactions from previous years, provided that two requirements are met:
1) the relevant facts and circumstances of such fiscal years are the same as in the fiscal years covered by the APA, and 2) the fiscal year has not been prescribed for audits by SUNAT.
However, this retroactivity does not apply when SUNAT has notified a determination resolution as a consequence of applying the transfer pricing rules to determine the value of transactions.
Subsequently, the provisions regarding the form and procedures for executing these advance pricing agreements will be established by means of a Supreme Decree endorsed by the Ministry of Economy and Finance (MEF).
Decree No. 1663 establishes that when traditional transfer pricing methods cannot be applied, “other methods” may be used as long as they comply with specific requirements. These methods must reflect the value that independent parties would agree to under similar conditions.
When, due to the nature of the activities or the lack of reliable, comparable transactions, the methods mentioned in items 1) to 6) of subsection e) of Article 32-A of the LIR (such as the uncontrolled comparable price method, the resale price, the cost plus method, the profit split -including the residual method- and the MNT) are not applicable, “other methods” may be used, provided they meet the following conditions:
According to the comparability analysis, the prices and amounts of consideration correspond to the value that would have been agreed upon by independent parties under similar conditions.
The alternative method is the most appropriate to reflect the economic reality of the transaction.
To determine the market value using “other methods,” the following rules apply:
– Discounted cash flow, multiples, equity value, or appraisal may be used for unlisted stocks or shares.
– For other types of transactions, methods such as discounted cash flow (DCF), multiples, equity value, valuation, or the multi-period excess earnings method (MPEEM) may also be used.
The objective is to reflect the economic reality of the operation in the most appropriate way when traditional methods are not applicable.
It should be noted that the DCF method would not be applicable if the transferor owns less than 5% of the shares of the company whose participation is being transferred or if the issuing company’s net income did not exceed 1,700 UIT in the previous taxable year.
To credit the market value through “other methods,” the taxpayer must submit a technical report that complies with the Regulation’s requirements and is delivered to SUNAT upon request. Both amendments will be effective as of January 1, 2025.