Brazil’s Transfer Pricing Rules – Product Sales

In a series of three short articles, we will introduce Brazil’s transfer pricing methods. In this first one, we touch upon product sales: imports and exports.



Por J. Rubens Scharlack e Victor H. Toioda


Despite its recent efforts to change this situation, Brazil is still not an OECD member and its transfer princing rules are quite unique. Introduced in 1996 by Federal Law 9.430, such rules are currently shaped by Federal Law 12.715/2012 and regulated by Normative Instruction RFB 1.312/2012. In a series of three short articles, we will introduce Brazil’s transfer pricing methods. In this first one, we touch upon product sales: imports and exports.

Because Brazil is a common product destination due to its huge internal market, Brazilian subsidiaries of multinational groups are more used to dealing with transfer pricing methods for imports, and so is the Federal Revenue. These are:

• Independent Prices Compared (PIC): parameter price under this method is the weighed arithmetic average of the price of identical or similar product, in buy-sell transactions, performed by the company or third parties, with similar payment terms. This method compares the import price of the taxpayer with that of products (i) sold by the taxpayer to other companies, (ii) purchased by the taxpayer from other companies, and (iii) in buy-sell transactions performed between other, unrelated, companies. The usual problem faced by taxpayers with this method is the lack of comparables.

• Production Cost plus Profit (CPL): parameter price here is the average production cost of identical or similar products, minus unconditional discounts granted, export taxes paid, and a profit margin of 20%. Brazilian subsidiaries opting for this method usually face difficulties with their related exporters in obtaining disclosure of the product cost’s breakdown.

• Resale Price minus Profit (PRL): under this which is the most popular method, parameter price is the arithmetic average of resale price of the products, minus unconditional discounts granted, taxed paid, and fixed profit margins of 20%, 30%, or 40%, depending on the economic activity of the taxpayer. The difficulty of this method resides on the possibility of a taxpayer failing to justify an otherwise arm’s lenght import price due to its resale profit margin falling short of that fixed by the tax law.

• Import Price under Quotation (PCI): parameter price under this method is the product’s daily average quotation price at internationally recognized commodities and futures exchanges. This method is restricted to the import of commodities.

Brazil is also a known exporter of primary commodities such as agricultural and mineral products, and there are, of course, transfer princing methods for product exports to related parties. They are:

• Sale Price on Exports (PVEx): parameter price under this method is the weighed arithmetic average of the sales prices on exports made by the company to unrelated purchasers, or by a trading company, of identical or similar products, during the same taxable period, and under similar payment terms.

• Wholesale Price at Destination, minus Profit (PVA): parameter price here is the weighed average price of identical or similar products on the wholesale market of the destination country, in similar payment terms, minus taxes embedded into the price and a fixed profit margin of 15% upon the wholesale price.

• Retail Price at Destination, minus Profit (PVV): calculation under this method is very similar to PVA, safe for the price here is that of the retail market and the fixed profit margin is of 30%.

• Products Acquisition Cost (CAP): parameter price here is the acquisition is the average cost of assets, plus taxes levied in Brazil, and a fixed profit margin of 15% calculated upon said average cost plus such taxes.

• Export Price under Quotation (Pecex): also restricted to commodities exports, this method uses as parameter price the average daily price of products quoted in internationally recognized commodities or futures exchanges.

These transfer pricing methods are generally easier for RFB to apply than for taxpayers to comply with. Taxpayers are usually advised to prepare dossiers gathering all necessary information and calculation to support a finding, during audit, that the relevant import or export price is set within the boundaries set by one of the methods above. A taxpayer may opt for a method for one product and a different one for another, but once a method is chosen for that product, it becomes mandatory for the entire taxable year. Transfer pricing adjustments to a taxpayer’s import or export price usually trigger income taxes assessments, due to either a deduction cancellation of part of the import price, or an income addition to the export price.

Finally, Brazil has not adhered to BEPS Action 14’s mandatory arbitration, so international disputes involving challenges to Brazil’s transfer pricing rules will undergo the mutual agreement procedure foreseen in its treaties to avoid double taxation.