Normative Instruction 38/97 (IN/SRF 38/97), published in the Official Gazette of 5 May 1997, establishes the regulations implementing the transfer pricing rules introduced by Law 9,430/96 (published in the Official Gazette of 30 December 1996).

IN/SRF 38/97 reproduces several provisions in Law 9,430/96 and sets forth new rules dealing in greater detail with each prescribed method. IN/SRF 38/97 also clarifies some legal terms (e.g. "related parties" and "similar goods") and contains new rules dealing with other issues. The main features of the new regulations are summarised below.

Comparable prices

The new rules contain specific guidelines on the comparability standards, according to which comparable prices can be adjusted by reference to the differences in the terms and conditions of the transaction and the special characteristics and content of the goods and services being compared. In the case of identical goods, regard must be given to the payment terms and conditions, quantity of goods, the granting of guarantees and the expenses related to qualifying promotional advertisement, quality control, costs of intermediaries, maintenance, insurance and freight. When comparing similar goods and services, regard must also be given to the difference in the features and content, with special consideration of the production costs in each case.

In the case of exports, credit risks must also be considered, and the rules further provide the conditions and circumstances under which adjustments must be made.

Comparable transactions

It is possible to use transactions made in previous or subsequent periods if comparable transactions in the current period are not available. For this purpose, the prices must be adjusted by reference to the variations in the relevant exchange rate.

Resale minus method

A formula is provided for calculating interest rates in instalments sales when applying this method. The rules list the Brazilian taxes whose foreign equivalents must be excluded from the price for purposes of applying the "wholesale price in the destination country less profit" method as well as the "retail price in the destination country less profit" method.

Cost plus method

The rules contain examples of what must be regarded as "production costs" for purposes of applying this method. The list includes:

  • the acquisition of raw material, capital goods, packing costs, payroll costs, including those related to the supervision, maintenance and safety of the production premises; and
  • hiring, maintenance, repair and depreciation or amortisation of the goods and services used in the production stage and the reasonable losses incurred during the production stage allowed by the relevant domestic legislation.

Safe harbour

An exception is granted to the 90% general safe harbour rule for exports to related enterprises for purposes of acquiring new foreign markets. Such exports do not need to meet the safe harbour rule, subject to certain conditions. For this special treatment to apply, a procedure has been established which starts with the taxpayer's preparation of an "export project scheme" that has already been approved by the Department of General Co-ordination of Taxes (COSIT).

This special treatment does not apply to exports destined to tax havens. In addition, a 5% marginal difference is included according to which no further adjustments are necessary if the relevant supporting documents differ from the adjusted comparable prices by only about 5%.


A new rule provides that the export prices shown on the relevant supporting documents are sufficient if (a) the value of exports to related enterprises in a tax period is 5% or less of the enterprise's total net profit of the same period or (b) the enterprise's export-related turnover in a tax period is 5% or less of its total turnover in the same period.

Profit-based methods

The regulations describe the circumstances under which the Ministry of Finance may modify the profit margin percentages of the profit-based methods. Such changes may be general or by sector and can be applied to individual cases as a result of either a unilateral administrative decision or a request by the taxpayer or group of taxpayers. The rules establish the procedure, terms and conditions under which the taxpayer may request such alteration and the effect of the decision.

Tax havens

The rules include a presumption under which imports and exports from or to related parties effected through unrelated intermediaries residents of tax havens are deemed to be effected between related parties.

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