Friday, 18 May 2012

Brazil Transfer Pricing Changes Proposed

Some noteworthy impending changes to Brazil’s transfer pricing rules were issued in April through Provisional Measure 563 (PM 563). Among the highlights:

With respect to the Resale Price Minus (local acronym “PRL”) method, current Brazilian rules require that one of two margins be applied:
  • 20% for transactions involving the import of goods for resale; or
  • 60% for transactions involving imported goods to be used as raw materials in manufacturing processes.
PM 563 would instead apply one margin, depending on the activity and industry of the legal entity, as follows:
  • 40% profit margin for:
    • Manufacture of pharmaceutical products
    • Manufacture of tobacco-related products
    • Manufacture of optical, photographic and cinematographic instruments and equipment
    • Commerce of dental health care products
    • Extraction of petrol and natural gas
    • Manufacture of petrol-derived products
  • 30% profit margin for:
    • Manufacture of chemical products
    • Manufacture of glass or glass-related products
    • Manufacture of cellulose, paper or paper-related products
    • Metallurgy
  • 20% profit margin for any other economic activity.
PM 563 also creates two new transfer pricing methods for the import and export of commodities (local acronyms “PCI” and “PCEX”). Under these methods, publicly-listed prices on commodity and futures exchanges, matching the date of the related-party transaction as closely as possible, may be referenced for transfer pricing purposes.

For interest paid by a Brazilian taxpayer to a related party, all loan agreements (whether they are registered or not with the Brazilian Central Bank) should now comply with the TP rules. Previously, such rules were applied only to loans not registered with the Central Bank. The interest rate accrued on the intercompany loans should correspond to an amount calculated according to the six-month term LIBOR rate, plus a spread based on an “average market rate” to be determined annually by the Minister of Finance.

With respect to the Comparable Uncontrolled Price method (local acronym “PIC”), where sampling is used to determine the arm’s length price, the size of the sample must be at least 5 percent of the total value of the relevant transactions.

These changes are effective as of January 1, 2013, assuming that the Brazilian Congress adopts them into law. However, companies may choose to apply the new rules starting in calendar year 2012
Source: Ceteris Transfer Pricing Times Volume IX, Issue 5‏