Transfer Pricing Reform 2025: The Discounted Cash Flow (DCF) Method

As of January 2025, Peru has introduced new valuation methods within its Transfer Pricing framework. Among them, the Discounted Cash Flow (DCF) method stands out, primarily designed to value shares or equity interests not publicly traded.

What is it about?

The DCF method seeks to answer a straightforward question:
How much is a company worth today based on the income it is expected to generate in the future?

To determine this, it projects future cash flows and discounts them to present value using a discount rate that reflects both risk and the minimum return expected by investors.

In practice, the sum of these discounted cash flows provides an estimate of the company’s current value.

Limitations

• Regulatory: The DCF method does not apply when the ownership stake is below 5% or when annual revenues do not exceed 1,700 UIT (Tax Units).

• Practical: DCF is highly sensitive to assumptions (cash flows, discount rate, terminal value), and may produce unrealistic valuations if not applied carefully.

The DCF method introduces new challenges in Transfer Pricing. At HLB PERU, we help you turn these challenges into robust compliance and competitive strategy.