3.1. Methods
Peruvian transfer pricing legislation has focused on establishing the guidelines issued by the OECD as the basis for controlling transactions between related parties and tax havens; thus, it has considered each of the recommended methods.
In this sense, paragraph e) of Article 32-A of the LIR establishes that the prices of the transactions subject to the scope of application of this article shall be determined according to any of the following internationally accepted methods, for which purpose the most appropriate one to reflect the economic reality of the operation shall be considered:
a. Comparable Uncontrolled Price
This method consists of determining the market value of goods and services between related parties considering the price or the amount of the considerations that would have been agreed with or between independent parties in comparable transactions.
In export or import transactions of goods with known quotation in the international market, local market or destination market, including those of derivative financial instruments, or with prices that are fixed taking as a reference the quotations of the indicated markets, the market value is determined on the basis of such quotation values.
For such purposes, the date of the quotation value is considered to be the date or period of the agreed quotation that the taxpayer must communicate to SUNAT, provided that it is in accordance with what was agreed upon by independent parties under the same or similar conditions.
If such communication is not submitted or is submitted late or incomplete, or contains information not in accordance with the agreement, the date of the end of the shipment of exported goods will be considered as the date of the quotation value. In the case of imported goods, the date of the end of the disembarkation shall be considered as the date of the quotation value.
The regulations indicate the list of goods included in the second paragraph (copper, gold, silver, zinc and fishmeal), the market or its characteristics from which the quotation is obtained, the quotation to be considered from such market, and the adjustments accepted to reflect the characteristics of the good and the modality of the operation.
In case the taxpayer uses a different method for the analysis of the referred transactions, it must submit to the tax administration the corresponding supporting documentation, as well as the economic, financial and technical reasons that justify its use.
In addition, subclause 1, subsection a) of article 113° of the LIR Regulations establishes that the criteria for choosing this method as the most appropriate are:
It is compatible with transactions involving the purchase and sale of goods for which there are prices in domestic or international markets and with the rendering of services that are not very complex.
It is not compatible with those transactions involving the definitive assignment or the granting of the assignment in use of significant intangibles.
It is also not compatible with those operations in which the products that are the object of the transaction are not similar in nature or quality; when the intangible goods are not the same or similar or when the markets are not comparable due to their characteristics or volume.
Legal basis: Subclause 1 of subsection e) of article 32 – A of the LIR, in accordance with the Legislative Decree N° 1381 in force since 01.01.2019.
b. Resale Price
This method consists of determining the market value of the acquisition of goods and services incurred by a purchaser with respect to its related party, which are then resold to an independent party, by multiplying the resale price established by the purchaser by the result obtained by reducing, by the unit, the gross profit margin usually obtained by such purchaser in comparable transactions with independent parties or by the margin usually obtained in comparable transactions between independent third parties..
The gross profit margin of the purchaser will be calculated by dividing the gross profit by the net sales.
Likewise, subclause 2, subsection a) of Article 113° of the LIR Regulations establishes that the criteria for choosing this method as the most appropriate is that it is compatible with operations of distribution, marketing or resale of goods to independent third parties, provided that such goods have not undergone a substantial alteration or modification or to which a significant value has not been added.
Legal basis: Subclause 2 of subsection e) of article 32 – A of the LIR.
c. Cost Plus
This method consists of determining the market value of goods and services that a supplier transfers to its related party, by multiplying the cost incurred by such supplier, by the result that comes from adding to the unit the markup that is usually obtained by such supplier in comparable transactions with independent parties or the markup that is usually obtained in comparable transactions between independent third parties.
The mark-up is calculated by dividing the gross profit by the cost of sales.
Subclause 3, subsection a) of article 113 of the LIR Regulations sets out that the criteria for choosing this method as the most appropriate is that it is compatible with manufacturing, fabrication or assembly operations of goods to which no significant intangibles are introduced, goods in process are provided or where services that add low risk to a main operation are provided.
Legal basis: Subclause 3 of subsection e) of article 32 – A of the LIR.
d. Profit Split
This method consists of determining the market value of goods and services through the distribution of the global profit, which comes from the sum of partial profits obtained in each of the transactions between related parties, in the proportion that would have been distributed with or between independent parties, taking into account, among others, the sales, expenses, costs, risks assumed, assets involved and the functions performed by the related parties.
Likewise, paragraph 4, subsection a) of Article 113° of the LIR Regulations establishes that the criteria for choosing this method as the most appropriate is that it is compatible with complex operations in which there are services or functions performed by the parties that are closely integrated or related to each other that do not allow the individualization of each one of them.
Legal basis: Subclause 4 of subsection e) of article 32 – A of the LIR.
e. Residual Profit Split
This method consists of determining the market value of goods and services according to the previous method, indicated in subclause 4) of subsection e) of Article 32 - A of the LIR, but distributing the overall profit as follows:
(i) The minimum profit corresponding to each related party shall be determined, by applying any of the methods approved in items 1), 2), 3), 3), 4) and 6) of the previously mentioned subsection e), without considering the use of significant intangibles.
(ii) The residual profit shall be determined by decreasing the minimum profit from the overall profit. The residual profit shall be distributed among the related parties, considering, among other elements, the significant intangibles used by each of them, in the proportion that would have been distributed with or among independent parties.
Likewise, subclause 5 of subsection a) of Article 113 of the LIR Regulations states that the criteria for choosing this method as the most appropriate is that it is compatible with transactions in which the existence of significant intangibles is additionally verified.
Legal basis: Subclause 5 of subsection e) of article 32 – A of the LIR.
f. Transactional Net Margin Method
This method consists of determining the profit that independent parties would have obtained in comparable operations, taking into account profitability factors based on variables, such as assets, sales, expenses, costs, cash flows, among others.
Likewise, numeral 6 of subsection a) of Article 113 of the Regulations of the LIR indicates as criteria for choosing this method as the most appropriate, that:
It considers only the elements directly or indirectly related to the operation and those related to the exploitation of the activity.
Non-transactional income and expenses that significantly affect comparability should not be taken into account, so unless it is demonstrated that it is impossible to do so, the financial data should be segmented and the method should not be applied to the entire company if the company carries out different related-party transactions that cannot be compared on a combined basis with those of a separate company.
Profits attributable to transactions that are not similar to the transactions subject to verification should not be included in the comparison.
It is not compatible with those transactions in which each party contributes significant intangibles, in which case the method of subclause 5 will be used.
Net margins may be based, among others, on the following proportions:
(i) Profits divided by net sales. It will be used mainly in distribution or marketing operations of goods.
(ii) Profits divided by costs plus operating expenses. It will be used mainly in manufacturing or assembly of goods, as well as in the provision of services.
Legal basis: Subclause 6 of subsection e) of article 32 – A of the LIR.
g. Other methods
When, due to the nature and circumstances of the activities or transactions or the lack of reliable comparable independent transactions, the aforementioned methods provided for in paragraphs 1) to 6) of subsection e) of article 32 - A of the LIR are not applicable, other methods may be used, provided that their use complies with the following conditions:
(i) The prices and amounts of the established consideration correspond to the value that would have been agreed with or between independent parties under the same or similar conditions in accordance with the provisions of paragraphs d) and e) of article 32-A of the LIR.
(ii) The other method used turns out to be the most appropriate to reflect the economic reality of the operation.
These other methods considered are the following: (i) The discounted cash flow method; (ii) The method of multiples; (iii) The equity value method; (iv) Appraisal; (v) Multiperiod Excess Earnings Method (MPEEM), and shall be applicable to transactions of shares or equity holdings (which are not listed on the stock exchange or in any centralized trading mechanism) or for transactions other than those mentioned above (for example, intangibles).
Legal basis: Subclause 7 of subsection e) of article 32 -A of the LIR.
3.2. Selection of the most appropriate method
For the purposes of establishing the valuation method that is most appropriate to reflect the economic reality of the operation, referred to in subsection e) of Article 32°-A of the Law, it will be considered, among others, the one that:
a) It is better compatible with the line of business, the business or commercial structure of the company or entity.
b) Has the best quality and quantity of information available for its proper application and justification.
(c) Provides for the most appropriate degree of comparability between parties, transactions and functions
(d) Requires the least level of adjustment to eliminate differences between facts and comparable situations.
For applying the most appropriate valuation method, the concepts of cost of goods and services, cost of production, gross profit, expenses and assets shall be determined based on the provisions of the International Accounting Standards, provided that it does not conflict with the provisions of the Law.
Legal basis: Article 113 of the LIR Regulations.
3.3. Comparability Analysis
Prior to the comparability analysis, the defined operation must be analyzed and recognized precisely, in order to properly perform the comparability analysis.
The purpose of the comparability analysis is to identify transactions similar to the object of study, carried out by the same taxpayer with an independent third party, or two independent parties.
3.3.1. Operations analyzed
With respect to the transactions subject to comparison analysis, the transactions referred to in paragraph 4) of Article 32 of the LIR are comparable to one carried out between independent parties, under the same or similar conditions, when at least one of the following two conditions is met:
That none of the differences that exist between the transactions subject to comparison or between the characteristics of the parties that carry them out may materially affect the price, amount of consideration or profit margin; or
That even when there are differences between the transactions being compared or between the characteristics of the parties that carry them out, which may materially affect the price, amount of consideration or profit margin, such differences can be eliminated through reasonable adjustments
Comparability adjustments must be made if they only improve the reliability of the result, i.e., the existence of differences between comparables is inevitable, however, if the operation under evaluation is not significantly affected by the existing difference, it is not necessary to make a comparability adjustment.
In Peru, the application of International Financial Reporting Standards (IFRS) for the preparation and presentation of Financial Statements prevails, which allow having policies and criteria similar to external comparables.
3.3.2. Comparability Factors
In order to determine whether the transactions found are comparable, the nature of the transaction and the method to be applied shall be taken into account, as well as the following elements or circumstances:
1. The characteristics of the operations, including:
a) In the case of financial transactions, elements such as: (i) The amount of the principal, (ii) Repayment term or period, (iii) Guarantees, (iv) Creditworthiness of the debtor, (v) Interest rate, (vi) Amount of commissions, (vii) Risk rating, (viii) Country of residence of the debtor, (ix) Currency, (x) Date, and (xi) Any other payment or charge, that is carried out or practiced by virtue of them.
b) In the case of the provision of services, elements such as: (i) The nature of the service, (ii) The duration of the service, (iii) Characteristics of the service, and (iv) The manner in which the service will be provided.
c) In the case of transactions involving the sale, lease or any other form of assignment in use of tangible assets, elements such as: (i) Physical characteristics, (ii) Quality and availability of the asset, (iii) Volume of the Offer, and (iv) Geographic location of the asset.
d) In the case of definitive assignment or in use of intangible assets, elements such as: (i) The contractual form of the transaction: License, franchise or definitive assignment; (ii) The identification of the intangible (intellectual property or industrial property rights) as well as the description of any method, program, procedure, system, study or other type of technology transfer; (iii) Duration of the contract; (iv) The degree of protection and the benefits expected to be derived from its use (value of future profits); and (v) The manner in which the services will be performed.
e) In the case of definitive transfer or in use of intangible assets, elements such as: (i) The equity value of the securities that are disposed of, which will be calculated on the basis of the last balance sheet of the issuing company closed prior to the date of sale or, failing that, the appraisal value; (ii) The present value of projected earnings or cash flows; (iii) The quoted value recorded at the time of the sale, in the case of stock market transfers; (iv) The average opening and closing value recorded on the stock exchange or centralized trading mechanism, in the case of over-the-counter disposals of shares or other listed securities.
2. Economic functions or activities
The comparison of the functions carried out by the parties is based on a functional analysis that aims to identify and compare the economically significant activities and responsibilities assumed by the independent parties and by the related parties, with an impact on their structure and organization.
This analysis will address the economic relevance of these functions in terms of their frequency, nature and value to the respective parties to the transaction. The main functions carried out by the party under analysis shall be identified, with the aim of making adjustments to eliminate any material differences in relation to the functions assumed by any independent party considered comparable.
The functions or activities to be considered, among others, are: a) Research and development; (b) Product design and engineering; (c) Manufacture, extraction and assembly; d) Purchase and handling of materials; (e) Distribution, marketing and advertising; (f) Transport, storage and after-sales services; (g) Management support services; and (h) Administrative, legal, accounting and finance, credit and collection services.
To identify and compare the functions carried out by the parties to the transaction, the following will also be taken into account:
2.1. The Assets used, including, but not limited to: (i) The class of assets used; (ii) Its nature; (iii) Seniority; (iv) Market value; and (v) Legal situation.
2.2. Risks of the operation, among others: (i) Market risks, including fluctuations in the price of inputs and final products; (ii) Financial risks, including fluctuations in foreign currency exchange rates and interest rates; (iii) Risks of loss associated with the investment; (iv) Credit and collection risk; (v) Risks in the quality of the product; (vi) General commercial risks related to the possession of goods, plant and equipment; and (vii) Risks related to the success or failure of research and development activities.
3. Contractual Terms, including, but not limited to: a) Payment Terms; b) Volume of sales or purchases; (c) Liabilities, risks and benefits assumed between the parties that could be based on: (i) The contractual clauses explicitly and implicitly defined, and (ii) The conduct of the parties in the transaction and the economic principles that generally govern relations between independent parties; d) Duration of the contract; e) Carrying out collateral transactions or continuous commercial relations between the buyer and seller, including agreements for the provision of auxiliary services.
4. Economic circumstances, which may be relevant to qualify as comparable to two markets, among others: a) Geographical location; b) Market level or marketing phase: Distributor, wholesaler, retailer; c) Market size and degree of economic development of each market; (d) The level of competition in the markets; (e) Competitive positions relative to buyers and sellers; (f) Market share of products, goods and services; (g) The availability of substitute goods and services; (h) The economic condition of the industry, including whether it is contracting or expanding; (i) Production costs and transportation costs; j) The nature and extent of the public regulations that affect the markets.
5. Business strategies, such as: a) Innovation and the development of new products; b) The degree of diversification, risk aversion, assessment of the impact of political changes and existing or planned labour laws; c) Strategies for penetration, permanence or expansion of markets.
In addition, information on the taxpayer and comparable transactions corresponding to two or more years before or after the year subject to audit may be taken into consideration when the business cycles or commercial acceptance of their products cover more than one year; where required for a better understanding of the facts and circumstances that might have influenced the determination of the price; as well as when required to determine the origin of the declared losses, when they are part of other losses generated in comparable transactions or are the result of specific conditions of previous years.
3.4. Eliminating differences
The operations carried out by companies with their related companies may be to a certain extent comparable or similar to the operations carried out by independent companies, however, we could not speak of "the same", because each of the companies is affected by factors specific to the market, the economy, the sector, the time or place of the operation. It has therefore been established that in order to eliminate differences, through reasonable accommodations, between the transactions being compared or between the characteristics of the parties that perform them or the functions they perform, the following elements must be taken into account, among others, as appropriate:
Payment term: The difference in payment terms will be adjusted considering the value of the interest according to the term granted for the payment of the obligations, the interest rate applied, commissions, administrative expenses and any other type of amount included in the financing.
Negotiated amounts: the adjustment must be made on the basis of the documentation of the selling company or other independent party, from which the use of discounts or bonuses arises.
Advertising: when the price of the goods, services or rights acquired from a related party involves the charge for promotion, propaganda or advertising, the price may exceed that of the other party that does not assume such expense, up to the amount paid, per unit of product and for this concept..
Intermediation cost: when using data from a company that incurs intermediation costs in the purchase of goods, services or rights and whose price will be comparable for a company within the scope of application of transfer pricing and which is not subject to the aforementioned charge, the price of the good, service or right of the latter may exceed that of the former, up to the amount corresponding to that charge.
Conditioning, freight and insurance: For the purposes of comparison, the prices of goods must be adjusted according to the differences in the costs of the materials used in the conditioning of each one and the freight and insurance that affect each case.
Physical nature and content: in the case of comparable goods, services or rights, prices must be adjusted according to the costs related to the production of the good, the execution of the service or the costs related to the generation of the right.
Where the non-controlled comparable price method is applied and the transactions used as comparables have been made in a currency other than that in which the transaction for which a comparable is sought was made, the amount to be compared, after adjustments have been made, will be converted to the currency in which the transaction in which it is being assessed was made based on the respective exchange rate in force on the date of each transaction.
Legal basis: Article 111 of the Income Tax Law.
3.5. Information sources of comparable companies
When local information is not available for the purpose of determining comparable transactions, taxpayers may use information from foreign companies, and must make the necessary adjustments to reflect differences in the markets.
Legal basis: Subsection d) of article 32-A of the LIR.
3.6.Non-comparable transactions
Subsection d) of Article 32-A of the LIR provides that the regulations may indicate the cases in which transactions that, even when carried out between independent parties, are carried out with a person, company or entity shall not be used as comparable:
(i) that has direct or indirect participation in the administration, control or capital of any of the parties involved in the transaction analyzed;
(ii) in whose administration, control or capital of the parties involved in the transaction analyzed has some direct or indirect participation; or
(iii) in whose management, control or capital the same person or group of persons who have direct or indirect participation in the management, control or capital of any of the parties involved in the transaction analyzed have direct or indirect participation.
In this sense, the regulations of the LIR, in its article 110 – A, establishes that the following are not considered comparable transactions:
Those made between independent parties, in any of the cases established in the last paragraph of subsection d) of Article 32°-A of the Law, when one of the parties involved in the transaction owns more than 5% of the capital of the other intervening party and such investment appears as a movable investment in the non-current assets in the accounting records and/or financial statements of the intervening parties, or is maintained as a financial investment for more than one year in current assets.
2. Those carried out by persons, companies or entities that make up irregular companies, communities of property, joint ventures, consortia and other business collaboration contracts not considered as a legal person for Income Tax purposes, derived from a contract or agreement under which said parties transfer or provide goods or services for identical prices and that the acquirer or counterparty is the same entity or company.
3.7. Comparability adjustments
Comparability adjustments must be made if they only improve the reliability of the result, i.e., the existence of differences between comparables is inevitable, however, if the operation under evaluation is not significantly affected by the existing difference, it is not necessary to make a comparability adjustment.
The most frequent adjustments are caused by the diversity of accounting criteria between related-party transactions and those carried out at arm's length; the segmentation of financial data that allows for the elimination of non-comparable transactions and adjustments made for differences in capital, functions, assets and risks.
In Peru, the application of International Financial Reporting Standards (IFRS) for the preparation and presentation of Financial Statements predominates, which allow for policies and criteria similar to those of external comparables.
3.8. Determination of price, amount of consideration or profit margin
b. Price Range
Article 114 of the Regulations of the LIR establishes that for the determination of the price, amount of the consideration or profit margin that would have been used between independent parties, in comparable transactions and that results from the application of any of the methods indicated in subsection e) of Article 32-A of the Law, A range of prices, amount of considerations, or profit margins must be obtained when there are two or more comparable transactions.
If the value agreed between the related parties is within the aforementioned range, it will be considered as agreed at market value. If, on the other hand, the agreed value is outside the range and as a result a lower Income Tax is determined in the country and in the respective year, the market value will be the median of said range. The range will be calculated by applying the interquartile method.
In the case of the application of the non-controlled comparable price method, if the transactions have a high level of comparability, the range will have as a minimum value the one that corresponds to the lowest value of the prices or amounts of consideration of the comparable transactions and the maximum value will be the one that corresponds to the highest value of these. For these purposes, the prices or amounts of consideration of comparable transactions are considered to have a high level of comparability if the coefficient of variation applied to the values of comparable transactions does not exceed 3%."
In the same sense, Article 115 of the LIR Regulations establishes how the Interquartile Method and calculation of the Median are determined.
c. Interquartile and Median
"Calculated prices" shall be understood as the prices, amounts of consideration or profit margins calculated by the application of the methods indicated in subsection e) of Article 32°-A of the Law on two or more comparable transactions.
a) Calculating the median
1. The prices calculated must be ordered in ascending order.
2. Each price thus ordered shall be assigned a sequential integer starting with the number 1 (one) and ending with the total number of calculated prices that make up the sample.
3. The total number of elements in the sample will be added to the unit and the result will be divided by 2 (two). The number thus obtained will be called the "median position".
4. If the "median position" is an integer, the median will be the price that corresponds to that position.
5. If the "median position" is a number formed by an integer part and a decimal part, the median shall be calculated as follows: The price whose position or place coincides with the integer part of the "median position" shall be taken; the price immediately higher than the price indicated in the previous section shall also be taken; and the prices indicated in sections (i) and (ii) will be added together and the result will be divided by 2 (two). The median will be the result of this operation.
b) Calculating the Interquartile Range
The interquartile range will have a minimum value of the 25th percentile and a maximum value of the 75th percentile.
The calculation of the 25th percentile and the 75th percentile will be obtained according to the procedure established in the LIR Regulations.
3.9. Export or import operations of goods with a known price in the international market, local market or destination market or that set their prices taking as a reference the prices of said markets, indicated in Annex 2 of the Regulation.
In accordance with Article 32-A, subsection e) of the LIR, the non-controlled comparable price method states that for the export or import of goods with public prices in international markets, whether local or destination, including derivative financial instrument markets, the market value will be determined on the basis of said quoted value.
For these purposes, the date of the contribution value is the agreed contribution date or period that the taxpayer communicates to the Tax Administration, provided that it is in accordance with what has been agreed by independent parties under the same or similar conditions.
If the aforementioned communication is not submitted or is submitted late or incomplete, or contains information that does not conform to the agreement, the date of shipment of the exported goods shall be considered as the date of the quoted value. In the case of imported goods, the date of the quoted value shall be considered the end of the unloading.
Regarding the aforementioned Communication, it should be noted that through the Single Transitory Complementary Provision of Supreme Decree No. 327-2022-EF, published on 12.29.2022 in the Official Gazette El Peruano, it is established that, until the superintendence resolution that establishes the form and conditions for the submission of the communication referred to in subclause 3 of article 113-A of the Income Tax Law Regulations enters into force, it must be sent in XLS format that SUNAT publishes on its web page on the date of submission of the communication, to the e-mail address precioscommodities@sunat.gob.pe, with the minimum information indicated in paragraph 3. 1 of subclause 3 of the aforementioned article, and it is not mandatory to send the contract or other document containing the terms agreed by the parties, or any other document that modifies or specifies such terms or adds content to them.
Likewise, when it is required to submit the amendment communication referred to in paragraph 3.2 of subclause 3 of the aforementioned article, it must also be sent in the latest version published on the SUNAT web page of said XLS format, referencing the DAM (Goods Customs Declaration) and series of the original communication, to the same e-mail address indicated in the preceding paragraph.
Communication (paragraph 3.1 of subcl. 3 of art. 113-A of the LIR regulations)
Comunicacion_Exportacion_Importacion_DS327_2022_EF_V1.1.1(Click to download) VERSIÓN 1.1.1 (Communication related to Exportation and Importation)
Comunicación modificatoria (paragraph 3.2 of subcl. 3 of art. 113-A of the LIR Regulations) (Modifying communication)
Comunicación_Exportacion_Modificatoria_DS327_2022_EF_V1.1(Click to download) (Communication related to Exportation and amendment)
Instructions for communication and amendment (Instructions for communication and amendment)
Instructions (Click to download) VERSION 2
For any queries related to the communication, you can contact the Service Center, telephone: (01) 315-0730.
The communication referred to in the preceding paragraph is considered incomplete when it does not contain in digital format the contract or other document containing the terms agreed upon by the parties, as well as any other document that modifies or specifies such terms or adds content to them made up to the date of submission of the communication; or when all the applicable information is not recorded or the translations are not attached.
The communication will also be considered incomplete if, as a result of a verification and/or inspection procedure, SUNAT verifies the existence of information that was not included in the communication.
In any case, the communication will be considered as not submitted if it is not made in the form and conditions established by SUNAT.
The taxpayer must support the use of a method other than the comparable uncontrolled price by presenting the technical support of the economic, financial and technical reasons that are reasonable and pertinent to justify the use of said method.
To this end, the aforementioned technical support must show the following:
That the uncontrolled comparable price method does not adequately reflect the economic and financial reality of the transaction, showing quantitatively the impact resulting from the distortion generated by the application of the aforementioned method.
That the transactions carried out by independent third parties are not comparable or even if they are subject to comparability adjustments, they end up reducing the reliability of the application of the method, so the lack of comparables must be documented or the qualitative and quantitative effect that leads to a loss of reliability in its application must be shown, it must attach an analysis of the functions, assets and risks that support the selection of a method other than the comparable uncontrolled price, as well as a comparability analysis that proves that comparability has been increased as a result of the application of the proposed method.
Legal basis: Legislative Decree N.° 1537; Article 113-A of the LIR; Supreme Decree 327-2022-EF (effective from 1.1.2023).