WTS News

The Brazilian Government recently issued a series of Provisional Measures (PM) regulating taxation issues. Among these, the implementation of a new method for Transfer Pricing reckoning on import operations has been generating a series of doubts and discussions.

Initially the PM n. 472 revoked part of Law n. 9.959/00 that established rules for the Resale Price minus Profit calculation method (PRL), which at that time were used by most companies. The PRL method consisted in a 20% profit margin for resale and 60% for production.

After a short period of time another PM was issued (n. 476) revoking in its turns the terms of PM n. 472 regarding Transfer Price calculation and supposedly reinstating the PRL method. However, Brazilian law only allows reinstatement if the terms are purposely expressed.

Subsequently, another PM (n. 478) was issued altering certain aspects of Transfer Pricing calculation and replacing the previous PRL method by the Sale Price minus Profit method (PVL) with a 35% profit margin for both resale and production.

However, the PM n. 478 was not converted into Law, losing its efficacy in June/2010. Accordingly, the new PVL method was no longer applicable and Tax specialists diverged if the PRL method is still valid or not. For those who understand that a reinstatement occurred and considers it is forbidden by law, the PRL method remained revoked and only the Independent Price Comparison (PIC) and Cost of Production minus Profit (CPL) methods would be applicable. For another stream of consciousness PMs do not revoke Laws but merely suspend them until the moment it is converted into Law when the revocation in fact occurs. Hence, the PRL method was not revoked and can be legally applied.

Since this matter is still a recent concern, at the moment there is no set of precedents or doctrine orientations about if. Nevertheless, according to informal Federal Revenue opinions, the PRL method will be possible for the Income Tax declaration from 2011 (base-year 2010) and will be considered valid by tax authorities trough all of the year, given the annual nature of Transfer Price reckoning.

Please fell free to contact us regarding any doubts related to Transfer Pricing rules.

Contact

Fernando Zilveti  - fzilveti@wtsdobrasil.com.br

Andressa Mazzafera  -  mazzafera@wtsdobrasil.com.br

Pollyana Mayer  -  pmayer@wtsdobrasil.com.br

Bruno Fugazza  -  bfugazza@wtsdobrasil.com.br

www.wtsdobrasil.com.br