Amendments To The Transfer Pricing Methods In Brazil- What You Need To Know

By Author: Alice Coope
Total Articles: 213
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The recent developments in Brazil’s transfer pricing policies and the use of fixed profit margins are an attempt to simplify the administration of transfer pricing methods, thereby reducing the number of tax audits. The Brazilian government introduced changes to transfer pricing rules which include a range of fixed profit margins for various industry sectors. Although the main changes are effective January 1, 2013, the rules can also be applicable for calendar year 2012.

Details of Provisional Measure 563

New fixed profit margins for the purpose of calculation of the Resale Minus Profit method (Preço de Revenda menos Lucro – PRL). While the existing profit margins are 20% for transactions related to import of goods for resale and 60% for transactions related to imported raw materials for use in manufacturing processes, the new profit margins will range between 20%, 30% or 40% depending on the economic activity of the legal entity.

A profit margin of 40% has been allotted for legal entities involved in the manufacture of pharma products, tobacco-based products, optical products, photographic and ...
... cinematographic equipment. It also includes sale of dental products, petrol and natural gas extraction and the manufacture of petrol-derived products.

A profit margin of 30% has been fixed for legal entities involved in the manufacture of chemical products, glass or glass-based products, cellulose, paper or paper-related products and metallurgy.

A 20% profit margin will be applicable for legal entities engaged in any other economic activity in Brazil. The new measure also introduced a reworked methodology to calculate the reference price using PRL method which greatly differs from the existing methodology.

PCI (Price Valuation under Import Transactions - Preço sob Cotação na Importação) and PCEX (Price Valuation under Export Transactions -Preço sob Cotação na Exportação)

As per the PCI and PCEX methods, the average daily stock market valuation of the goods and rights of a particular transaction will be taken into account while comparing the prices used by Brazilian parties with related parties.

New rules for tax deduction of interest payments

New rules related to the taxes on interest payments for loan agreements between a Brazilian entity and a foreign based related party have been introduced. As such, interest payments will now be deductible for tax purpose covering an amount consistent with the London Interbank Offered Rate (LIBOR) for US deposits of 6 months, added to a rate which will be announced by the Ministry of Finance.

Since Brazil does not comply with the OECD transfer pricing policies, the risk of international double taxation is very high. However, of late the Brazilian tax authorities are more open to discussing changes to transfer pricing policies with the representatives of taxpayers. Provisional Measure 563 has also been projected as Brazil’s first move towards adopting OECD’s Arm’s Length Principle.
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Know more on : tax for expats, eu vat & global transfer pricing