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How multinationals can navigate Brazil’s TP environment

Due to the non-conformity of Brazil’s transfer pricing rules to international norms, navigating the country’s transfer pricing environment can be a turbulent affair. Marcelo Natale, Carlos Ayub and Fernando Matos of Deloitte’s Sao Paulo office, analyse the options for multinational groups operating in the country.

Brazil is one of the many non-member economies with which the OECD has working relationships. In 1998, in response to a request from the Brazilian authorities for closer cooperation with the OECD, the OECD Council established a country-specific programme for Brazil. Since then, Brazil has become a strong and active partner of the OECD. The OECD Council at the ministerial level adopted a resolution on May 16 2007, to strengthen its cooperation with Brazil. While enhanced engagement is distinct from accession to the OECD, it has the potential to lead to membership in the future.

The OECD published the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations in 1995, which were amended and updated in 2010. While the OECD transfer pricing guidelines provide general guidance to taxpayers and tax authorities, they are not enforceable as law in the OECD member countries, unless the domestic laws of those countries state otherwise. They do, however, provide best practices to comply with the arm's-length standard. The arm's-length concept, under Article 9 of the OECD Model Tax Convention, provides that "where conditions are made or imposed between associated enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly".

Brazil historically has established transfer pricing methods that bear little (if any) resemblance to the transfer pricing methods listed under the OECD transfer pricing guidelines. But the methods provided by the Brazilian transfer pricing rules have been very effective in generating tax revenue for the Brazilian government. It is not uncommon for multinational corporations to face multimillion-dollar transfer pricing adjustments, which are typically taxed at a 34% rate.

Arguably, an indirect aim of the Brazilian transfer pricing rules (specifically, the transfer pricing rules that were in place between 1997 and 2012) was the encouragement of the level of value-added activities taking place in Brazil. In other words, they were designed to foster local development of intellectual property, manufacturing activities, and purchase of local components. This becomes clear when we take as an example the most widely used transfer pricing method for analysing and documenting intercompany inbound transactions of tangible goods, services, and rights – the resale price minus profit margin, or PRL method. Despite the significant level of controversy associated with the PRL method, the law defining the PRL made clear that the "value added in Brazil" should be excluded for the purpose of determining the parameter price under the method. In practical terms, the greater the value added in Brazil, the lower the potential local transfer pricing adjustments.

A friendly tax environment matters greatly to multinational corporations. Stockholders in general would rather invest funds in jurisdictions that provide greater returns on capital investment associated with reasonable tax practices. The Brazilian transfer pricing rules have contributed to investors taking Brazil off their list of top locations for foreign investment. For example, automakers have established plants in Argentina and Mexico rather than Brazil simply because those countries appear to provide friendlier transfer pricing rules. The difference between the Brazilian transfer pricing rules and the OECD transfer pricing guidelines is so great that it played a significant role in Germany's decision to terminate its double taxation treaty with Brazil in 2005.

Brazil published new transfer pricing rules through the enactment of Law 12,715/2012 and Normative Ruling (NR)1,312/2012. Those were published as part of a long-awaited initiative to stimulate domestic growth, but apparently did not entirely achieve that goal. The new transfer pricing rules are applicable primarily to inbound tangible goods transactions, financial transactions, and commodity-type transactions. They were also very efficient in discouraging taxpayers from entering into intercompany outbound transactions, to the extent that one of the existing safe harbour criteria practically ceased to apply. Needless to say, outbound transactions are extremely important for balancing international trade.

Summary of Brazilian transfer pricing rules

Different from the methods under the OECD guidelines, which often rely on aggregated operating results aiming at a specific targeted net margin to test the arm's-length nature of intercompany transactions and prices, the Brazilian transfer pricing legislation sets out specific methods for the pricing of transactions between Brazilian companies and foreign affiliates on a product-by-product, service-by-service, and right-by-right basis. These methods vary in accordance with the nature of the transaction under analysis (import or export transactions). The result is that a bespoke approach is generally required for meeting the requirements of the Brazilian transfer pricing legislation.

As a general rule, the Brazilian transfer pricing legislation calls for the comparison of two prices: practiced prices (the prices effectively paid or received by the Brazilian taxpayer entering into intercompany transactions) and the parameter prices (the prices derived from the application of one of the available transfer pricing methods). Whenever the parameter price is lower than the practiced price in intercompany inbound transactions, the difference represents an adjustment to the Brazilian tax basis. Conversely, whenever the parameter price is higher than the practiced price in intercompany outbound transactions, the difference represents an adjustment to the Brazilian tax basis.

The Brazilian transfer pricing rules provide three methods to analyse and document intercompany import transactions and four methods to analyse and document intercompany export transactions. Two additional methods are available and must be applied to assess transfer pricing in transactions involving commodity-type products.

Methods applicable to import transactions

The three specified methods applicable to import transactions are:

  • The comparable independent prices (PIC) method: Defined as the weighted average of uncontrolled prices of similar goods, services, or rights as calculated in the Brazilian market or in other countries, in purchase or sale transactions carried out under similar circumstances. The prices determined under the PIC method should be compared to the weighted-average intercompany price paid by the Brazilian taxpayer for similar goods, services, or rights. Application of the PIC method depends on the taxpayer's ability to obtain and document similar third-party transaction prices.

  • The resale price minus profit (PRL) method: The PRL method is defined as the arithmetic mean of the resale price for goods, services, or rights, minus (i) unconditional discounts granted; (ii) taxes and contributions levied on the sales; (iii) commission and brokerage fees paid; and the profit margins listed in Table 1 which vary in accordance with the sector or activity in which the imported goods, services, or rights were applied.

  • The production cost plus profit (CPL) method: Defined as the weighted-average production costs of equivalent or similar goods in the country of origin of the product, increased by the taxes and duties imposed on exports by the referred country, and by a gross profit margin of 20% computed on the identified cost base. To make the application of the CPL feasible, foreign related parties should obtain detailed information regarding the production costs of the items imported by the Brazilian taxpayer.

Table 1

Gross profit margins

Sector or activity


Pharmachemicals and pharmaceutical products

Tobacco-related products

Optics, photography, and cinematographic equipment and instruments

Medical and dentistry-related machinery and equipment

Extraction of oil and natural gas

Oil-related products


Chemical products

Glass and glass-related products

Cellulose, paper, and paper products



All other sectors

Methods applicable to export transactions

The four specified methods applicable to export transactions are:

  • The export sales price (PVEx) method: This method is a version of the comparable uncontrolled price (CUP) method applicable to export operations, in that it requires comparison of the average intercompany export price to the average price charged in unrelated-party transactions entered into by the company itself, or by another Brazilian exporter of equivalent or similar products, under similar payment conditions.

  • The wholesale price in the country of destination minus profit (PVA) method: The PVA is defined as the average price of equivalent or similar goods in sales between unrelated parties in the wholesale market of the country of destination, under similar payment conditions, reduced by the taxes included in the price and charged by the respective country, and by a gross profit margin of 15% of the wholesale price.

  • The retail price in the country of destination minus profit (PVV) method: Similar to the PVA method, the PVV is defined as the average price of equivalent or similar goods in sales between unrelated parties in the retail market of the country of destination, under similar payment conditions, reduced by the taxes included in the price and charged by the respective country, and by a gross profit margin of 30% of the price.

  • The acquisition or production cost plus taxes and profit (CAP) method: Under this method, the basis for comparison is the average of the acquisition or production cost of exported goods, increased by taxes and contributions paid in Brazil and by a 15% gross profit margin computed on the aggregate of cost plus taxes and contributions.

Safe harbour rules

Following the enactment of Law 12,715/2012, the Brazilian revenue services on December 31 2012 published NR 1,312/2012. The purpose of the ruling is to provide instructions to tax inspectors and taxpayers on how to apply the country's new transfer pricing rules set forth by Law 12,715/2012.

Since the enactment of the Brazilian transfer pricing rules in 1996, the Brazilian revenue services allowed some flexibility for taxpayers that enter into eligible outbound intercompany transactions (outbound transactions carried out with parties located in jurisdictions Brazil does not consider tax havens or favourable tax jurisdictions) through safe harbour rules. Safe harbour rules consist of two independent thresholds allowing taxpayers not to apply a transfer pricing method to analyse the reasonableness of their outbound transactions' pricing. The thresholds are based on the profitability and/or representativeness of the relevant intercompany outbound transactions. Table 2 compares the old safe harbour rules (applicable to all fiscal years up to 2012) with the new rules (in principle applicable to any fiscal year starting on or after January 1 2013). Please note that under NR 1,312/2012, commodity product transactions are not eligible to benefit from the safe harbour criteria.

NR 1,312/2012 changes the profitability safe harbour rules significantly, affecting a taxpayer's ability to pass muster under the threshold. This discourages companies from entering into intercompany outbound transactions to the extent that by being ineligible to apply the safe harbour criteria they would be subject to the Brazilian transfer pricing methods on outbound transactions.

Table 2



Applicable until December 31 2012

In principle applicable to fiscal years starting on or after January 1 2013

Revenue representativeness safe harbor

Transactions are not subject to the Brazilian transfer pricing rules if the net revenue for intercompany outbound transactions is below 5% of the total net revenue for the year under analysis.

Same as before.

Profitability safe harbor

Taxpayers earning pre-tax margins in intercompany outbound transactions equal or above 5% are not subject to the Brazilian transfer pricing rules, based on the financial data for the three most recent years (current year, plus two preceding years). Exceptions were available for some years allowing the calculation on a single-year basis.

The pretax margin threshold was increased from 5% to 10%. The 10% margin should be determined based on the financial data for the three most recent years (current year plus two preceding years). Additionally, the profitability safe harbor will not apply to taxpayers entering into outbound intercompany transactions whose net revenue from related parties represents more than 20% of the total outbound transaction net revenue.

Methods applicable to commodity type transactions

The new transfer pricing rules introduced two additional methods to the existing Brazilian methods: the stock exchange import price (PCI) and the stock exchange export price (PECEX) methods for inbound and outbound transactions in commodities, respectively.

Under the additional methods, the basis for comparison is the average stock exchange price for the relevant items adjusted for any applicable upward or downward spreads. The stock price that should be used corresponds to the average price on the date of the transaction. In cases in which no stock price exists for the relevant date, the analysis should be based on the average stock price for the most recent date before the transaction date. The new transfer pricing methods must be applied to intercompany transactions involving commodities. In other words, taxpayers are no longer allowed to apply any of the remaining methods to assess the reasonableness of their transfer prices.

The Brazilian government provided a list of products that should be treated as commodities for transfer pricing purposes. The list was poorly drafted and included entire standard classification group codes, which do not necessarily meet the characteristics of true commodity products. Taxpayers and tax practitioners are having a hard time interpreting the new transfer pricing methods for commodity products. We hope the Brazilian tax authorities will amend the wording of these additional methods, while taking into consideration the economic conditions that define a pure commodity. For instance, the new transfer pricing methods applicable for commodity products treat "cocoa and its byproducts" as commodity products. Does it mean that a rich chocolate bar manufactured with cutting-edge technology is a commodity product? Such an assertion does not seem to make sense to most taxpayers and tax practitioners.

Financial transactions

New transfer pricing rules specifically addressing interest paid on related-party financial transactions were published in December 2012 (Law 12,766/2012) and the Brazilian Ministry of Finance was charged with issuing guidance on the applicable spreads. Before the rules came into effect on January 1 2013, interest paid on related-party financial transactions was outside the scope of the Brazilian transfer pricing rules if the relevant transaction was registered with the Brazilian central bank.

Law 12,766/2012 established the interest rates that should be applied as a "stand-in" to determine the reasonableness of interest expense or income associated with related-party financial transactions, and provided that such rates should be applied in conjunction with a spread component to be determined by the Ministry of Finance. Because no guidance was issued until August 2 2013, taxpayers and tax practitioners have been unsure as to how to correctly apply the new transfer pricing rules on related-party financial transactions. For example, it was unclear whether there would be different spreads for each type of transaction or just one fixed margin, and when and how often the spread(s) would be published.

The basic rule under Law 12,766/2012 is that the interest limitation on financial transactions (a maximum for inflows and a minimum for outflows) is a combination of a rate plus a spread. Different rates apply, depending on the type of transaction, the currency used, and other factors. The rates are defined in Table 3.

Table 3




Rate limit



Fixed rate, predetermined

Market rate of sovereign bonds of Brazil issued in US$ in foreign markets



Fixed rate, predetermined

Market rate of sovereign bonds of Brazil issued in Reals in foreign markets

Any (a)

Any (a)

Any (a)

If there is no specific Libor for the currency adopted, the six-month Libor in US$ should be used (b)




May be determined by Ministry of Finance

(a) The Libor limit considers the adoption of any currency, market, and type resulting in different combinations other than those specified for other rate limits.

(b) If there is no specific Libor for the currency adopted, the six-month Libor in US$ should be used.

The spread component that must be taken into consideration when applying the above rates has now been determined by the Ministry of Finance. The spread varies depending on the nature of the financial transaction under analysis (inbound or outbound). For inbound financial transactions, when the Brazilian taxpayer pays interest to a foreign related party, the annual spread is limited to a maximum rate of 3.5%. For outbound financial transactions, when the Brazilian taxpayer receives interest from a foreign related party, the annual spread is limited to a minimum rate of 2.5%. It is not clear what basis the Ministry of Finance used to set these rates.

The Ministry of Finance acknowledged the lack of guidance during the first seven months of 2013, and Ruling 427/2013 established that the spread applicable to intercompany outbound financial transactions for the period from January 1 2013 through August 2 2013 is 0%. In other words, the 2.5% spread on outbound financial transactions applies during the period from August 3 2013 to December 31 2013.

Because transfer pricing in Brazil is assessed on a calendar-year basis, the application of a 0% spread for the first seven months of the year should benefit taxpayers entering into intercompany outbound financial transactions (to the extent it lowers the minimum interest revenue requirement in Brazil).

Timing and frequency of documentation

Brazil requires that transfer pricing analyses be conducted on an annual basis, and results should be reported in specific forms provided in the Brazilian income tax return. It should be noted that a written transfer pricing documentation report as required by OECD member states and most other countries is not required from a Brazilian transfer pricing perspective. The transfer pricing analysis consists of the transfer pricing calculation and all required underlying information in order to obtain the prices with the chosen method.

Transfer pricing adjustments (if any) are due on January 31 of the following fiscal year. These are generally taxed at 34%. The income tax return should be filed annually on the last business day of June. Interest between the period from January to June and penalties apply on any transfer pricing adjustments that should have been included in the Brazilian income tax and social contribution basis payable on January 31.

Transfer pricing management and compliance

Multinational corporations operating in Brazil are subject to a significant level of scrutiny by the Brazilian Revenue Services (RFB), which enforces application of the Brazilian transfer pricing legislation stringently.

The proactive development of an efficient transfer pricing policy is crucial to mitigating any double taxation issues. This process usually includes:

  • Developing an intercompany transaction inventory;

  • Assessing the most appropriate transfer pricing method to document intercompany transactions based on facts and circumstances;

  • Assessing the possibility of managing intercompany prices within the fiscal year to either mitigate or reduce to zero any Brazilian transfer pricing adjustments;

  • Assessing whether the relevant intercompany transactions are memorialised in intercompany agreements; and

  • Preparing transfer pricing analyses and reports documenting the relevant intercompany transactions.

Brazil's transfer pricing rules have been a source of controversy ever since they came into effect. Unfortunately, the recent amendments to the Brazilian transfer pricing rules do little to align Brazilian transfer pricing legislation with international norms. They continue to lack the economic rationale provided under the US transfer pricing regulations and the OECD transfer pricing guidelines. Nevertheless, the changes are significant and impact the transfer pricing tax burden of all multinational companies in Brazil.

Marcelo Natale (, Carlos Ayub ( and Fernando Matos ( are tax partners in Deloitte's São Paulo office, and Alexandro Tinoco ( is a transfer pricing senior manager in Deloitte's São Paulo office.




Carlos E Ayub

Tax partner – transfer pricing

Deloitte Touche Thomatsu

R. Alexandre Dumas, 1981


São Paulo – SP – Brasil

Tel: +55 11 5186-1227

Fax: +55 11 5181-3693; +55 11 5181-2911


Carlos Ayub is a tax partner based in São Paulo, Brazil, focused on transfer pricing services.

He provides services to local, European, Asian, Latin and North American clients operating in various industries such as automobile, chemical, pharmaceutical and electronic, among others.

Carlos has more than 23 years of professional experience, also including accounting audit, corporate tax and transfer pricing services.

In 2001, Carlos was transferred to the Mexico City office to work with transfer pricing projects under the OECD approach, matching Brazilian and international rules.

He has authored various articles on transfer pricing for reputable magazines, newspapers and other publications of national and international circulation.

Carlos is a member of the Brazilian transfer pricing group, which has been recognised by different institutions for several years as the best transfer pricing team in Brazil.

Business communities

  • Registered at the CRC – Accounting Regional Council;

  • Coordinator of the Tax Commission for the French-Brazilian Chamber of Commerce;

  • Member of Transfer Pricing Technical Group of the Federação das Indústrias do Estado de São Paulo (FIESP).


  • Bachelor's Degree in Accounting – Faculdade de Ciências Econômicas de São Paulo – Fundação Álvares Penteado (1993);

  • MBA Controller – Fundação Getulio Vargas (2004);

  • Law – Universidade Paulista Paulista (2008).

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