ITS - International Tax Structures

ITS - International Tax Structures

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  • Paulo César Teixeira Duarte Filho
    Paulo César Teixeira Duarte Filho    Premium Member
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    BRAZIL: New Brazilian Transfer Pricing Rules fell down
    New Brazilian Transfer Pricing Rules fell down


    Paulo César Teixeira Duarte Filho

    We have informed in a previous article published on April 2010 at Xing about the recent changes to the Brazilian transfer pricing legislation, introduced through the Provisional Measure no. 478 (MP 478/09), from last December, especially the exclusion of the “Resale Price Method – PRL” and its presumed margins of 20%, for no or irrelevant addition of value, and 60%, for events of considerable addition of value by the importer. In its place was introduced the “Sale Price less Profit Method – PVL”, with a presumed profit margin of 35% for both types of transaction.

    As mentioned at the time, the starting of effects of the MP 478/09 would be January 1st, 2011, provided that the MP 478/09 would be voted and converted into law in 2010. However the MP 478/09, as a normative instrument with a “temporarily” character, should have been voted until May 31, 2010. The MP was not voted and thus ceased to be valid on June 1st, 2010.

    For this reason, the former rules (presumed “profit” margins of 20% and 60%, as the case may be) were kept in force: Law no. 9430/1996 and Normative Ruling of the Federal Internal Revenue no. 243/2002 (IN SRF 243/02).

    There is a serious discussion about the conformity of the IN SRF 243/02 with the Law no. 9430/1996, since the calculation method provided in it differs from that of the Law no. 9430/96 (s. computation methods below). After all, the Normative Ruling (IN), as a simple administrative act of the tax authorities, should not be able to introduce changes in the legal system, but only to clarify or specify its application and interpretation.

    In such case, it is possible for the taxpayer to choose between the method of the IN and the method of the Law, making use of the most convenient one, i.e., the one which doesn’t lead to a required tax adjustment or leads to a lower one. The application of the Law no. 9.430/96, meanwhile, has to be granted by filing a law suit (writ of mandamus), based on the illegality of IN SRF no. 243/02. Notwithstanding there is no final decision of the Federal Superior Court (STJ) about this matter, the lower courts precedents are favorable to the taxpayers.

    a. Example of calculation for PRL: applicable to resale transaction only (without manipulation, production, transforming, packaging etc. in Brazil) – Profit margin of 20%.

    Method of the IN SRF 243/02 and of Law no. 9430/96 (IN SRF 32/01)
    Average resale price: 100,000
    (-)Unconditional discounts: 10,000
    Net av. resale price: 90,000
    (-) Profit margin (20%): 18,000
    (-)Taxes on sales: 5,000
    (-)Commissions, fees: 5,000
    Reference price: 62,000
    Actual import price: 70,000
    (-) Reference price 62,000
    Adjustment for IRPJ and CSL: 8,000



    b. Example of calculation for PRL: applicable to resale transactions when there is manipulation, production, transforming, packaging etc. in Brazil (e.g. purchase of technical product, active ingredients) – Profit margin of 60%.


    Method of Law no. 9430/96

    Average resale price: 100,000
    (-)Unconditional discounts: 10,000
    (-)Taxes on sales: 5,000
    (-)Commissions, fees: 4,500
    (-)Invoiced Freight and Insurance 500
    (-)Costs in Brazil (value added) 10,000

    Net av. resale price: 70,000

    (-) Value of profit margin 42,200 60%
    Reference price 27,800

    Actual import price: 40,000
    (-) Reference price 27,800
    Adjustment for IRPJ and CSL: 12,200


    Method of the IN SRF 243/02

    Average resale price: 100,000
    (-)Unconditional discounts: 10,000
    (-)Taxes on sales: 5,000
    (-)Commissions, fees: 4,500
    (-)Invoiced Freight and Insurance 500

    Net av. resale price: 80,000

    Total costs 50,000 100%
    Cost of imported product 40,000 80%
    Costs in Brazil (value added) 10,000 20%

    Net av. resale price 80,000
    (x) Participation of imp. product 80%
    Proportional net av. resale price 64,000
    (x) Profit margin (60%) 60%
    Value of profit margin 38,400

    Proportional net av. resale price 64,000
    (-) Value of profit margin 38,400
    Reference price 25,600

    Actual import price: 40,000
    (-) Reference price 25,600
    Adjustment for IRPJ and CSL: 14,400


    Unless the elections for President, State Governors and Congressmen taking place on October 3rd provoke lateness in the legislative process and in the decisions of the, it is also very probable that the Federal Government enacts very soon a new Provisional Measure about Transfer Pricing, to substitute the “invalidated MP 478/09”.
    This post was modified on 03 Aug 2010 at 08:32 pm.
    • 03 Aug 2010, 8:24 pm