Related People

The Internal Revenue Service of Brazil, through Normative Instruction n º 1.312/12 published in the Official Gazette on December 31, 2012, regulated the transfer pricing control applicable to entities engaged in import and export transactions of goods, services and rights with related parties resident overseas, as well as on international transactions carried out with individuals or legal entities, whether related or not, located in the so-called tax havens, privileged tax regimes and countries that do not disclose information on the shareholding of resident companies, in view of the recent changes introduced by Law No. 12.715/12.

The new Transfer Pricing rules have been in force from January 1, 2013.

The novelties brought by the Normative Instruction are:

  • The PIC (Independent Comparable Price) import method which shall take into consideration transactions representing at least 5 percent of the imports carried out by the taxpayer, subject to transfer pricing in the tax year; and corresponding to independent prices practiced in the same tax year of the imports subjected to the transfer pricing control.
  • Profit margins applicable to the PRL (Resale Price less Profit) method will be segregated by economic sector of the legal entity that is subject to transfer pricing control. Profit margins will range from 20% to 40%.
  • New methods to be applied to imports (PCI) and exports (PECEX) transactions with commodities, which will be based on the daily average quotation of assets or rights subject to public prices on internationally recognized markets. The Normative Instruction stipulated in the schedules annexed which are the commodities that must necessarily be bound by this method, and which are the internationally recognized markets.
  • Restriction on the deduction of interest from loan agreements executed with related parties. Any such loan agreements, even if they are registered with the Brazilian Central Bank, will be subject to transfer pricing control. As a result, deduction of interest will be limited to the 6 month US Dollar LIBOR plus 3 percent spread.
  • New rule determining the need for compliance with transfer pricing rules to back to back transactions;
  • Exclusion of the benefit of not being subject to the Transfer Pricing rules in the case of exports to related companies with the intention of conquering new markets.
  • Possibility to adopt the new transfer pricing rules to import or export transactions occurred in 2012.

Normative Instruction n º 243/02 which previously regulated the matter was revoked.