Brazilian Administrative Court decides in favour of taxpayer in a case involving the inclusion of third party freight and insurance services fees in prices practiced by tested party

As widely known, Brazil's transfer pricing rules do not adopt the internationally accepted arm’s length standard. For instance, for the purposes of applying the Brazilian equivalent to the resale price method ("PRL") in transactions involving import of goods between related parties abroad, regulations provide the use of statutory fixed margins to derive a benchmark ceiling price.  In these instances, actual transfer pricing practiced by the local tested party must be lower than that derived benchmark price, otherwise tax authorities will impose a transfer pricing adjustment.  

In addition to the potential double taxation issues resulting from the non-adoption of the arm's length standard, there are many controversial legal issues that have been disputed by taxpayers and tax authorities, since rules became effective on 
January 1, 1997. One of the most controversial issues is whether third party insurance and freight services fees, as well as Brazilian import duties, should or should not be included as an integral part of import costs to determine the actual transfer price practiced by a tested party. In many situations such amounts increase actual transfer prices to levels beyond benchmark prices.  As a result, arguing that these adjustments are mandatory, tax authorities have been imposing tax assessments against many taxpayers. 

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