Transfer Pricing Country Summary Brazil

of 5 Transfer Pricing Country Summary Brazil 23 July 2015

of 5 Legislation Existence of Transfer Pricing Laws/Guidelines Brazil has its own transfer pricing regime governed by Law 9,430/96, articles 18 to 24 and 28. Currently, Normative Instruction No. 1,312/12 issued by the Brazilian Federal Revenue provides specific rules on the application of transfer pricing methods and related rules. Definition of Related Party Companies are considered related if they are under common control or if one of them is located in a tax haven or low-tax jurisdiction. Transfer Pricing Scrutiny Brazilian transfer pricing legislation is relatively recent. In recent years, tax authorities have considerably increased the number of audits, mainly in strategic sectors (e.g. pharmaceuticals, electronic, auto-parts, etc.). Transfer Pricing Penalties Although there are no specific penalties established by the transfer pricing legislation, should the taxpayer not provide the tax authorities with the proper information, it may be subject to the arbitration of prices by tax authorities based on available documents and information, applying on of the methods established in Law 9,430/96. In this case, should be arbitration result in any adjustments on the company s income tax basis and, as a consequence, in a tax deficiency, such amount is generally subject to interest penalties based on the Selic rate (varying from 10% to 15% per year) and fines (varying from 20% to 75%). Advance Pricing Agreement (APA) There is no formal regime for obtaining APAs but, by means of a consultation process governed by Law 9,430/96, it may be possible to request a change in the fixed profit margin. This procedure has not been adopted in practice since (i) it is very difficult for a company to prove the profit margin of a given sector and (ii) it is subject to Federal Revenue s discretionary powers (up to date, no change of margin has been granted by Tax Authorities). Safe Harbors According to the Brazilian transfer pricing legislation, if the average sales price of goods, services or rights to related parties abroad is not lower than 90% of the average sales price of these same goods,

of 5 services or rights to Brazilian non-related entities, the taxpayer is dismissed from the duty to comply with the Brazilian transfer pricing rules on export transactions. Brazilian legislation includes other two types of safe-harbors for export transactions involving related parties, the first one for companies with export revenues equal to, or below 5% of the total turnover on a given calendar-year and the second one for companies that present a minimum profitability on export transactions equivalent to 10% of the corresponding export revenues, the revenues derived from export transactions to related parties does not exceed 20% of the total revenue derived from export transactions. A Brazilian company which qualifies for one of these safe-harbors is not subject to transfer pricing control on the relevant calendar-year (safe-harbors are not applicable to transactions with companies located in tax haven jurisdictions). Documentation And Disclosure Requirements Tax Return Disclosures Taxpayers must disclose in their corporate income tax return information regarding their intercompany transactions and, in the case transfer pricing rules are applicable, their proper information. Level of Documentation There are no specific documentation requirements but, when (and if) requested, a taxpayer must provide the tax authorities with information on the method applied, the documentation used to support the price and the respective calculation records. If a taxpayer does not provide the tax authorities with this information or provides insufficient or inappropriate information, it may be subject to the determination of prices by the tax authorities based on documents available, applying one of the methods prescribed by Law 9,430/96. Record Keeping Documentation to support the transfer pricing methods must be kept for a period of 5 years after the end of the financial year for which the documentation was prepared as it is the period during which the tax authorities ordinarily are allowed to make assessments. Language for Documentation According to the tax legislation, all the accounting and fiscal documentation shall be presented in the Portuguese language (documents in other languages shall be translated).

of 5 Small and Medium Sized Enterprises (SMEs) There is no specific transfer pricing rules and regulations for SMEs. Deadline to Prepare Documentation Documentation must be available to tax authorities by the end of March of each year (when the income tax assessment from the previous year must be concluded and paid). Deadline to Submit Documentation The information regarding transfer pricing is submitted to the tax authorities through the corporate income tax return, which shall be submitted before 30 June, every year. Statute Of Limitations Generally 5 years after the end of the financial year (exception is made e.g. for fraudulent transactions). Transfer Pricing Methods The methods included in Brazil s transfer pricing legislation are similar to the OECD Guidelines traditional methods with an important peculiarity, which is the application of statutory, fixed gross profit margins. The taxpayer may choose any of the methods described below, as long as it is applicable for the case in question. Also, the taxpayer may apply the transfer pricing method that results in the lowest taxable income. Import Transactions Comparable Uncontrolled Prices Method (PIC), defined as the weighted average price adopted (i.) by the exporter abroad, in identical or similar transactions with non-related parties; (ii.) by the importer in Brazil in identical or similar transactions with other non-related suppliers; or (iii.) in identical or similar transactions between other non-related suppliers and buyers; under similar payment conditions and terms; Production Cost Plus Profit Method (CPL), defined as the weighted average production cost of identical or similar goods or services in the exporter s jurisdiction plus (i.) underlying taxes and duties charged by such jurisdiction in export transactions; and (ii.) markup of 20% of the COGS (costs of goods sold); Resale Price less Profit Method (PRL), defined as the difference between the participation of the imported good, service or right in the final sale price and the corresponding profit margin. The profit margins are determined according to the economic sector of the company subject to

of 5 transfer pricing control. According to this method, the transfer price is computed as follows: (i) it is calculated as the ratio between the weighted average cost of the imported goods, services, or rights and the weighted average total cost of the goods manufactured or resold, services or rights in Brazil; (ii) such ratio is applied to the weighted average sales price of goods manufactured or resold, services or rights in Brazil; (iii) to the result obtained as per item (iv) a fixed markup is deducted, and the remaining amount is equal to the parameter price. Export Transactions Export Sales Price Method (PVEX), defined as the weighted average sales price of exports made by the same company to other customers, or by another Brazilian exporter of equivalent or similar goods, services or rights during the same tax period and under similar payment conditions; Wholesale Price in the Country of Destination Less Profit Method (PVA), defined as the weighted average sales price for equivalent or similar goods in sales made in the wholesale market of the country of destination, under similar payment conditions, reduced by the taxes included in the price of the country of destination and by a profit margin of 15% of the wholesale price; Retail Price in the Country of Destination Less Profit Method (PVV), defined as the weighted average of the price of equivalent or similar goods in sales made in the retail market of the country of destination, under similar payment conditions, reduced by the taxes included in the price and by a profit margin of 30% of the retail price; Acquisition or Production Cost Plus Taxes and Profit Method (CAP), defined as weighted average production or acquisition cost of the goods, services or rights plus (i) underlying taxes charged in Brazil; and (ii) the markup of 15% of the COGS plus taxes. Comparables N/A