Post by WeissJeffrey on Mar 13, 2009 8:24:00 GMT 4
Brazil: Authorities amend transfer pricing legislation
For a fourth consecutive year and with the objective to minimise the effect for Brazilian exporting companies from the appreciation of the local currency in relation to foreign currencies (specifically the US dollar and the Euro and mainly during the first semester of 2008), the Brazilian authorities issued on December 29 2008, ordinance 310 and normative instruction 898 which amended the Brazilian transfer pricing legislation. The ordinance and normative instruction state that Brazilian exporting companies will be allowed to increase their export revenues for calendar year 2008 (for transfer pricing calculation purposes) using the ratio of 1:20. This measure will apply for the fiscal year 2008.
Under the strict Brazilian transfer pricing rules, Brazilian exporting companies have to document / calculate their transfer prices using fixed margin methods allowed by the Brazilian legislation. Contrary to the OECD guidelines, US transfer pricing regulations, as well as the transfer pricing rules introduced by some of Brazil's key Latin American trading partners such as Mexico and Argentina, Brazil's transfer pricing rules do not adopt the internationally accepted arm's length principle. Instead, Brazil's transfer pricing rules define maximum price ceilings for deductible expenses on inter-company import transactions and minimum gross income floors for inter-company export transactions.
For export transactions, Brazilian companies may opt to use a purchase or production cost plus taxes and profit method, which sets forth that the minimum export price is to be equal or higher to the cost of acquisition or production of exported property, services, or rights increased for taxes and contributions imposed by Brazil plus a profit margin of 15%.
Yet, Brazilian exporting companies may also use one of the three safe harbour rules to document their transfer prices. Two of these rules, for which the adjustment to export revenues is allowed, are referred to as the 90% safe harbour rule and the relief of proof rule:
* The 90% safe harbour rule says that a taxpayer is deemed to have an appropriate transfer price when the average export sales price is at least 90% of the average domestic sales in the Brazilian market during the same period and under similar payment terms.
* One of the relief of proof rules, which is subject to the adjustment, states that a taxpayer may be relieved from the obligation to document the adequacy of the export sales price if its net income before income tax and social contribution on net income derived from export sales to related entities is at least 5% of the revenue from such sales.
Without the issuance of the ordinance and normative instruction, some Brazilian exporting companies may have had to account for a transfer pricing adjustment for the fiscal year 2008, which would have resulted in the payment of additional income tax and social contribution on net income on income not effectively generated.
Nélio Weiss (nelio.weiss@br.pwc.com) & Philippe Jeffrey (philippe.jeffrey@br.pwc.com), São Paulo
For a fourth consecutive year and with the objective to minimise the effect for Brazilian exporting companies from the appreciation of the local currency in relation to foreign currencies (specifically the US dollar and the Euro and mainly during the first semester of 2008), the Brazilian authorities issued on December 29 2008, ordinance 310 and normative instruction 898 which amended the Brazilian transfer pricing legislation. The ordinance and normative instruction state that Brazilian exporting companies will be allowed to increase their export revenues for calendar year 2008 (for transfer pricing calculation purposes) using the ratio of 1:20. This measure will apply for the fiscal year 2008.
Under the strict Brazilian transfer pricing rules, Brazilian exporting companies have to document / calculate their transfer prices using fixed margin methods allowed by the Brazilian legislation. Contrary to the OECD guidelines, US transfer pricing regulations, as well as the transfer pricing rules introduced by some of Brazil's key Latin American trading partners such as Mexico and Argentina, Brazil's transfer pricing rules do not adopt the internationally accepted arm's length principle. Instead, Brazil's transfer pricing rules define maximum price ceilings for deductible expenses on inter-company import transactions and minimum gross income floors for inter-company export transactions.
For export transactions, Brazilian companies may opt to use a purchase or production cost plus taxes and profit method, which sets forth that the minimum export price is to be equal or higher to the cost of acquisition or production of exported property, services, or rights increased for taxes and contributions imposed by Brazil plus a profit margin of 15%.
Yet, Brazilian exporting companies may also use one of the three safe harbour rules to document their transfer prices. Two of these rules, for which the adjustment to export revenues is allowed, are referred to as the 90% safe harbour rule and the relief of proof rule:
* The 90% safe harbour rule says that a taxpayer is deemed to have an appropriate transfer price when the average export sales price is at least 90% of the average domestic sales in the Brazilian market during the same period and under similar payment terms.
* One of the relief of proof rules, which is subject to the adjustment, states that a taxpayer may be relieved from the obligation to document the adequacy of the export sales price if its net income before income tax and social contribution on net income derived from export sales to related entities is at least 5% of the revenue from such sales.
Without the issuance of the ordinance and normative instruction, some Brazilian exporting companies may have had to account for a transfer pricing adjustment for the fiscal year 2008, which would have resulted in the payment of additional income tax and social contribution on net income on income not effectively generated.
Nélio Weiss (nelio.weiss@br.pwc.com) & Philippe Jeffrey (philippe.jeffrey@br.pwc.com), São Paulo