Brazil Amends Transfer Pricing System

The Brazilian government has amended its Transfer Pricing Regulations (TPR), which may affect companies doing business in the country. New Normative Instruction (NI) 1,312 regulating new transfer pricing provisions were issued.

Sunnyvale, CA (prHWY.com) January 24, 2013 - Brazilian Transfer Pricing Regime: Key Highlights

The two safe harbors rates issued under previous NI 243/2011 remain unchanged.
* Although for companies the minimum profitability compliance safe harbor has been increased to 10 % (from 5%) of net profit before taxes.
* This provision will be applicable where net export income from related businesses is not more than one-fifth of the total export net income.
* Additionally, the new instructions clarify that safe harbor is not applicable to commodities export, according to Export with Price under Quotation - "Preço sob cotação da exportação" method (PECEX).
* New regulations on pricing of commodities under Preço sob cotação da importação (PCI) and PECEX export/import quotation methods.
* Back to Back Transactions: New directives have also clarified the taxation position, on transfer pricing regulations regarding back-to-back transactions (i.e. when a business resident in Brazil buys commodities from a foreign resident entity and then sells the acquired goods to another foreign resident entity).
* Divergence Margin: New directives have also expanded the application of the divergence margin subject to the PCI and PECEX method, to import and export of commodities. Therefore, the transactions will be satisfactory if the adjusted price has a variance of up to 3%, more or less from the amount mentioned on the export/import document.

Brazilian Transfer Pricing Regime: Implications

Brazilian entities must re-visit their transfer pricing strategies to check if their net pre-tax profits on exports to a related party are 10% in order to avail safe harbor benefits.

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