The provisions are effective 1 January 2013 or, at the taxpayer’s election, may be applied retroactively from 1 January 2012, provided that the changes are fully adopted by the taxpayer.
The following discussion provides an overview of these transfer pricing changes.
Comparable uncontrolled price (PIC) method
When a Brazilian entity uses its independent transactions as comparables (i.e., a purchase of the same or similar product in the domestic / local market) the third-party comparables must represent at least 5% of the amount of import transactions.
However, when the minimum sample of independent transactions during the period is not achieved, transactions from the preceding year can be used, provided that the foreign exchange effects are appropriately adjusted.
Methods for testing commodity transactions
Inbound and outbound commodity transactions must be tested—i.e., tested exclusively using the following methods.
- Quotation price on imports (PCI) method applies for inbound transactions and is based on the average daily price of goods or rights as recognized on an international futures and commodities exchange, adjusted by the average premium.
- Quotation price on exports (PCEX) method applies for outbound transactions and is based on the average daily price of goods or rights as recognized on an international futures and commodity exchange, adjusted by average premium.
When the commodity is not recognized on an international futures and commodities exchange, the following sources can be used: (1) independent data provided by an internationally recognized industrial research institute (as defined by Brazilian federal tax authority); or (2) prices published in the official daily gazette by agencies or regulatory bodies for export transactions comparisons.
Normative Instruction 1,312/12 includes a list of products that must be considered to be a commodity for purposes of the transfer pricing law and also lists the international futures and commodities exchanges, research institutes, and publications that will be acceptable as source of market price.
Differential factor margin
The general rule allows a differential factor of 5% between the actual price and the comparable price.
For commodities transactions, the permitted difference between the actual price and the quotation sourced by international futures and commodities exchanges, research institutes, and publications will be 3%.
Safe harbor
The safe harbor rules that previously applied for export transactions were significantly revised.
To be eligible for the safe harbor, the net pre-tax profits on exports to a related party must be 10% (the prior rule required a 5% net profit). However the safe harbor relief will only be available when the export net revenue with related parties does not exceed 20% of the total export net revenue during the period.
Interest on related-party loans
Law 12,766/12 introduced new rules to be applied for testing the amount of interest on related-party loans. These new rules apply with respect to loan agreements as of 1 January 2013, as well as with respect to the renewal or re-negotiation of existing loan agreements.
The rules on interest and minimal revenue arising from related- party loans include the following:
- For loans in U.S. dollars (USD) at fixed rate, the parameter rate (i.e., the maximum or minimum rate depending on whether the transactions is inbound or outbound) is the market rate of the sovereign bonds issued by the Brazilian government on the external market, indexed in U.S. dollars
- For loans in Brazilian real (BRL) at fixed rate, the parameter rate is the market rate of the sovereign bonds issued by the Brazilian government on the external market, indexed in BRL. In instances of loans denominated in BRL at a floating rate, the Ministry of Finance will regulate the parameter rate price.
- For all other loans, the parameter rate is the six-month London Interbank Offered Rate (LIBOR). The spread rate may be determined by Brazil’s Ministry of Finance based on market conditions.
For more information, please contact a tax professional with KPMG in Brazil:
Marienne Coutinho
+55 11 2183-3182
Ericson Amaral
+55 11 2183-3375
Eliete Ribeiro
+55 11 2183-3288
Henrique Conti
+55 11 2183-3278
Evandro Tiba
+55 11 2183-1824
Ricardo Roa
+55 11 2183-6596