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Brazil: Court decides on third-party freight and insurance issues

As widely known, Brazil's transfer pricing rules do not adopt the internationally accepted arm's-length standard.

For instance, for the purposes of applying the Brazilian equivalent to the resale price method (PRL) in transactions involving import of goods between related parties abroad, regulations provide the use of statutory fixed margins to derive a benchmark ceiling price. In these instances, actual transfer pricing practiced by the local tested party must be lower than that derived benchmark price, otherwise tax authorities will impose a transfer pricing adjustment.

In addition to the potential double taxation issues resulting from the non-adoption of the arm's-length standard, there are many controversial legal issues that have been disputed by taxpayers and tax authorities, since rules became effective on January 1 1997. One of the most controversial issues is whether third party insurance and freight services fees, as well as Brazilian import duties, should or should not be included as an integral part of import costs to determine the actual transfer price practiced by a tested party. In many situations such amounts increase actual transfer prices to levels beyond benchmark prices. As a result, arguing that these adjustments are mandatory, tax authorities have been imposing tax assessments against many taxpayers.

Disputing the issue, taxpayers alleged that transfer pricing regulations do not provide that such adjustment is mandatory and that it should not be performed if insurance and freight services are contracted with third unrelated parties. On the other hand, the tax authorities argued that regulations impose such adjustment even if payments are made to third parties, as the only required condition is that the tested party ultimately bears the cost associated with those services.

In a recent decision, the Brazilian Administrative Court (CARF) ruled in favour of the taxpayer. By examining the case, CARF officials decided that insurance and freight services fees, as well as Brazilian import duties, should not be included in the calculations to assess the transfer price practiced by the tested party.

The decision was celebrated by taxpayers in general, though it cannot be used as mandatory precedent to other taxpayers.

Nélio Weiss ( & Philippe Jeffrey (


Tel: +55 11 3674 2271

Fax: +55 11 3674 2040


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