Brazil makes key ruling on methodology

International Tax Review is part of Legal Benchmarking Limited, 4 Bouverie Street, London, EC4Y 8AX

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Brazil makes key ruling on methodology

ariof.jpg

TP Week correspondent Machado Associados reports on a key ruling by the Brazilian tax authorities

The Brazilian tax authorities have made a key ruling about the resale price less profit method. The method can now be used on import transactions.


Law 9430/96 established control of import and export prices charged on transactions carried out between Brazilian legal entities and their related parties (individual/legal entity resident or domiciled abroad) or individual/legal entities resident or domiciled in a reduced taxation country. It encompasses import and export of goods, services or rights and interest payments between related parties, as technically defined by law.

To arbitrate import and export transaction prices, Brazilian taxpayers must choose the method that best fits their needs among those established by tax legislation. The ones related to import transactions are comparable independent prices (PIC), production cost plus profit (CPL) and resale price less profit (PRL).

The application of the PRL method to arbitrate the import price of goods to be consumed or used in the manufacturing process was previously vetoed by normative instruction 38/97. Such restriction ended as of January 2000, with the implementation of Law no. 9959/2000, which authorised the use of the PRL method in these cases, but using a profit margin of 60%.

machado-associados150x.gif

Based on that ruling, the tax authorities have assessed the taxpayers (most of them in the pharmaceutical area) who arbitrated the import price of goods that were used or consumed in the manufacturing process according to the PRL method.

The Taxpayers’ Council (second level of the administrative court) has analyzed the pharmaceutical industries’ appeals and has decided in their favor due to the following reasons, among others:

(i) according to the Brazilian Federal Constitution, only the law can state or raise tax while the normative ruling can merely clarify the content of a law;

(ii) the restriction was only included in a normative ruling and not in a law; and

(iii) at that time, Law 9430/96 did not prevent the use of PRL (20% profit margin) in case the imported goods were used in the manufacturing process.

Another aspect related to the PRL method (60% margin) that has been discussed by taxpayers and requires further clarification is the calculation established by IN SRF 243/02.

more across site & shared bottom lb ros

More from across our site

Brazil appears to be adopting protocols to align national taxation with international standards, but recent changes are not immune from criticism, experts tell ITR
The US president did not have the authority to impose the tariffs, a court ruled; in other news, Fried Frank and Crowe Ireland made key tax hires
Pillar two considerations have become a fact of life for taxpayers everywhere, not least in Switzerland, where companies nonetheless continue to be active with investment
The Dutch TP software company’s co-founder tells ITR about speeding up documentation processes, following in Steve Jobs’s footsteps, and what makes tax cool
The ruling underscores the need for companies to provide robust and defensible valuations of intangible assets, one partner tells ITR
Pillar two is certain to be a game-changer for tax advisers and their clients. Russell Gammon of Tax Systems outlines 10 reasons why
Despite a general decline in corporate tax rates around the world, jurisdictions are now more reliant on it than in 1990, a Tax Foundation economist found
Australian law firm Webb Henderson’s report said PwC had met 46 of 47 targets; in other news, the OECD has issued new transfer pricing country profiles
The arrival of a seven-strong team from Baker McKenzie will boost WTS Germany’s transfer pricing capabilities and help it become ‘a European champion’, the firm’s CEO said
Germany has forgotten to think about digital reporting requirements, a WTS partner claimed at ITR’s Indirect Tax Forum 2025
Gift this article