A new tax bill in Brazil has introduced transfer-pricing rules into Brazilian tax law for the first time. The new rules apply to transactions between related parties and to transactions between unrelated parties when they are made through tax haven countries.
Under the transfer-pricing law, costs, expenses, and charges for goods and services from related parties are deductible in computing taxable profits only up to an amount not exceeding a price determined by one of three specified methods:
- A comparison with an arithmetical average of prices between independent parties for identical or similar items
- A comparison of resale prices less a profit margin
- A cost-plus method
For the purposes of determining prices under the above methods, only transactions with unrelated parties are considered. If more than one method is used, the one producing the highest value is taken. The deduction for tax purposes cannot exceed the actual price charged.
Export revenues from related parties are subject to transfer-pricing adjustments if the average sales prices is lower than 90% of the average price for similar goods or services sold in Brazil during the same period and under similar payment conditions. If the actual sales price is lower than this specified limit, revenues from export sales for tax purposes will be determined by one of the following four methods:
- Average export sales price for similar goods
- Wholesale price of exports less a 15% profit margin
- Retail price of exports less a 30% profit margin
- Cost of purchase or production plus a 15% profit margin
With respect to intercompany loans, if the contract is not registered with the Central Bank of Brazil, transfer-pricing adjustments can be made when the interest rate varies from the dollar London interbank offered rate (LIBOR) for deposits plus 3%. If the loan contract has been registered with the Central Bank of Brazil, the rate specified in the contract will be accepted.
Related parties for the purposes of the transfer-pricing law include any company or entity under at least 10% common control with the company domiciled in Brazil.
The transfer-pricing law will also apply to transactions between a Brazilian taxpayer and an unrelated foreign party if the foreign party is resident or domiciled in a tax haven. A tax haven is a country that either does not subject the transactions to income tax or levies income tax at a rate of 20% or less.
This article was correct as of 1 April 1997.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
For further information contact Carlos S Romero, Deloitte Touche Tohmatsu, Sao Paulo, Brazil on Tel: +55 11 257 0122, Fax: +55 11 258 8456