Transfer Pricing Rules in Brazil
The majority of countries have transfer pricing legislation and Brazil is no different. Although, Brazilian transfer pricing methods are pretty unique. This article outlines the differences between Brazilian transfer pricing methods and the latest changes in the Brazilian transfer pricing rules.
The Organization for Economic Cooperation and Development, also known as OECD, in 1979 created guidelines to adjust transfer pricing. A lot of countries based their own transfer pricing legislation on the guidelines of OECD. Brazil has also adopted these guidelines, although Brazilian transfer pricing legislation has specific rules and different methods than the ones adopted by OECD.
Introduction to Transfer Pricing in Brazil
Related Party to Brazilian Transfer Pricing Rules
All private persons or legal entity residents or residents of Brazil that practice operations with private persons or legal entity residents or residents abroad, are subjected to the Brazilian legislation of transfer pricing control. Others that are also subjected to this regime are private persons or legal entity residents or residents of Brazil that practice operations with any private persons or legal entities, resident or residents of a country with low tax jurisdiction:
- that does not tax income
- that has an income tax rate of less than 20%
Parameter Prices Calculation Methods
The methods of parameter prices are established in order to guarantee that the price used to calculate the real profit and to calculate the social contributions over the net profit are as close as possible to the market prices. They permit the comparison between prices which goods, services and rights are sold or bought, even when negotiated in different terms.
The methods of parameter prices, established by the Brazilian legislation, related to import activities are:
| Brazilian Methods | OCDE Methods |
| PIC: Preços Independentes Comparados | CUP: Comparable Uncontrolled Price |
| PRL (Revenda): Preço de Revenda Menos Lucro | RPM: Resale Price Method |
| PRL (Produção): Preço de Revenda Menos Lucro | RPM: Resale Price Method |
| CPL: Custo de Produção Mais Lucro | CPM: Cost Plus Method |
The methods of parameter prices, established by the Brazilian legislation, related to export activities are:
| Brazilian Methods | OCDE Methods |
| PVEX: Preço de Venda nas Exportações | CUP: Comparable Uncontrolled Price |
| PVA: Preço de Venda Por Atacado no País de Destino Diminuído do Lucro | RPM: Resale Price Method |
| PVV: Preço de Venda a Varejo no País de Destino Diminuído do Lucro | RPM: Resale Price Method |
| CAP: Custo de Aquisição ou de Produção Mais Tributos e Lucro | CPM: Cost Plus Method |
Changes in the Brazilian Transfer Pricing Rules
The Brazilian Normative Instruction nº 563 of 2012 implemented new measures in order to promote economic growth in Brazil. The new legislation changed the Brazilian transfer pricing rules, creating new regulations and alterations in some transfer pricing methods.
New Methods to Commodities import and export
The new legislation established new transfer pricing methods related to the import and export of commodities: PCI which is the Quotation Price on imports method and PECEX that is the Quotation Price on exports method. Both methods are defined as the average daily prices of goods or rights subjected to public listing on internationally recognized trading and futures markets and are adjusted positively or negatively according to the market premium average, on the date of the transaction.
PCI and PECEX started to be used in 2013, and since then they are the only recognized methods applicable to the transfer pricing of commodity imports and exports in Brazil. Any other transfer pricing method is not valid.
Alteration in PRL method
Before the new legislation, the profit margins related to the PRL method were usually 20% to import goods that would be resold, and 60% to import goods that would undergo some form of industrial process in Brazil. With the new law, the profit margins for pure resale and industrialization operations by Brazilian importers can vary between 40%, 30% or 20% depending on the economy sector.
Profit Margins
| 40% | 30% | 20% |
| Pharmaceutical/pharma-chemical products tobacco products optical, photographic and cinematographic equipment and instruments dental, medical and hospital equipments and instruments extraction of petroleum and natural gas Petroleum-related products | chemical products glass and glass products pulp, paper and paper products metallurgy | For all other economic sectors |
Alteration in PIC method and in Interest on Related-Party Loans
The new legislation also introduced changes related to PIC method. Transactions utilized to calculate the transfer pricing adjustments under the PIC must now present at least 5% of the import value subjected to the transfer pricing rules in the respective computation period. The transactions must also correspond to independent prices practiced in the same calendar year of the respective import transactions.
Loan agreements and the renewal or renegotiation of existing loan agreements between related parties began to be subjected to the new Brazilian transfer pricing rules, whether or not the agreements were registered with the Brazilian Central Bank. The interest paid to related parties will be calculated according to the Libor rate and the spread margin will be determined by the Ministry of Finance based on market conditions.