Amendments in Brazilian transfer pricing ("TP") legislation can impact the pricing of transactions among related parties for tax purposes, when one of such parties is located in Brazil. Below, we shortly summarize the main amendments.

Export and import of commodities

  1. Export and import of commodities: two new methods for the calculation of the parameter price for imports and exports of commodities were created: the Stock Exchange Import Price ("PCI") and the Stock Exchange Export Price ("PECEX"). Import and export of commodities quoted in futures and commodities exchange markets internationally recognized and listed by the tax authorities should necessarily comply with these methods. This is a substantial amendment since methods with fixed margins were until now allowed for commodity transactions.

Changes on methods for import transactions

  1. Resale Price Less Profit Method ("PRL"): the calculation criteria for the PRL method was set now in a way that the percentage of the cost of the imported good over the total cost of the good sold should be taken into account when determining the parameter price, in line with a previous Normative Ruling from 2002. Such criterion should be employed regardless on whether the imported good is merely resold or applied into a manufacturing process in Brazil. The change in law also innovated by providing three different mark-ups (20%, 30% or 40%), defined according to the industry. Before the change in law, there were two different mark-ups, a 20% mark-up for the simple resale of imported goods and a 60% mark-up for products imported and applied into a manufacturing process in the country.
  1. Comparable Uncontrolled Price Method ("PIC"): the comparables used to determine the parameter price under this method should correspond to import transactions that (i) are carried out in the same calendar-year of the transactions tested according to the PIC and (ii) represent at least 5% of the amount of the transactions subject to the TP scrutiny in relation to the imported good, right or service. Such thresholds were not present in the TP legislation before the change in law.

Interest payments

  1. Deduction of interest payments: all loan agreements (registered or not with the Brazilian Central Bank) should now comply with the TP rules. The interest rate accrued on the 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 disclosed annually by an act from the Minister of Finance. Interest charged in excess of this rate will not be tax deductible. Only the loans not registered with the Brazilian Central Bank were subject to TP scrutiny before the change in law.

TP inspections

  1. The change in law determines that the taxpayer should elect one of the methods for calculating the parameter price on a calendar-year basis and cannot change it once a tax inspection begins. If the tax authorities disqualify the method chosen, the taxpayer should submit a new calculation according to any of the other methods within 30 days. After the expiration of this term, the tax authorities are allowed to calculate the parameter price grounded on the documents available, picking any of the methods provided by the legislation. The legislation was silent on this matter before the publication of Provisional Measure 563/2012, so it was common to see a dispute between taxpayers and tax authorities on whether the taxpayer could change the TP method as soon as a tax audit was initiated. Now, such procedure was expressly forbidden.
  1. Effective Date: provisional measure 563/2012 should enter in force as of January 1st, 2013, assuming that the Brazilian Congress converts this provisional measure in law. The provisions regarding the TP inspection are in force since the publication of Provisional Measure 563/2012. Nonetheless, taxpayers, at their sole discretion, are authorized to anticipate, irrevocably, the adoption of the new rules still in 2012.