Brazil proves that easiest is not always best

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

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

Brazil proves that easiest is not always best

abraz.jpg

TP Week correspondent Machados explains why the easiest transfer pricing method is not always the best approach

abraz2.jpg

In order to arbitrate import and export transaction prices, Brazilian taxpayers must choose the method that best fits their needs among those established by tax legislation. Based on our experience, the Resale Price Less Profit (PRL) is the easiest way, but at times not the most advantageous, to calculate the parameter price due on import transactions as its applicability depends solely on Brazilian company documents.

Article 18 of Law no. 9430/96 establishes that the PRL parameter price shall be equivalent to the weighted average of resale prices of imported goods, services or rights for unrelated parties, less: (i) unconditional discounts; (ii) taxes on sales; (iii) brokerage fees and sales commissions; (iv) in the case of mere resale of imported goods, 20% profit margin on resale price less unconditional discounts only; or 60% profit margin on resale price less unconditional discounts and value added in the country, in the case of manufacturing inputs.

The issue arises as to the application of 60% profit margin on resale. The referred article of Law no 9430/96 was firstly regulated by normative ruling no 32/01, which determined that the parameter price should be the difference between the net sales price (duly deducted of discounts, taxes and commissions) and the profit margin of 60%. For a better understanding, we illustrate a hypothetic calculation according to this ruling, which we understand to be fully according to the law:

Description

Brazilian R$

Reference

Raw material import cost

7,600.00

(a)

Added costs in Brazil

3,190.00

(b)

End product cost

10,790.00

(c) = (a) + (b)

Average sales price

14,000.00

(d)

Unconditional discounts, sales on taxes, brokerage fees and sales commissions

2,000.00

(e)

Calculation basis of 60% profit margin

8,810.00

(f) = (d-e-b)

60% profit margin

5,286.00

(g) = (f x 60%)

Parameter price

6,714.00

(h) = (d-e-g)

IRPJ and CSLL adjustment

886.00

(i) = (h-a)



However, normative ruling no 32/01 was revoked in November 2002 by normative ruling no. 243/02, which determines that the calculation of the parameter price shall consider only the deduction of the profit margin (corresponding to the proportion of the imported material on the total cost of the end product) from the value of participation of the imported material in the net sales price of the end product, as follows (hypothetically):

Description

Brazilian R$

Reference

Raw material import cost

7,600.00

(a)

Added costs in Brazil

3,190.00

(b)

End product cost

10,790.00

(c) = (a) + (b)

Average sales price

14,000.00

(d)

Unconditional discounts, sales on taxes, brokerage fees and sales commissions

2,000.00

(e)

Percentage of the imported raw material on the end cost product

70,44%

(f) = (a/c)

Participation of the imported raw material in the net sales price of the end product

8,452.80

(g) = (f) x (d-e)

60% profit margin

5,071.68

(h) = (g x 60%)

Parameter price

3,381.12

(i) = (g-h)

IRPJ and CSLL adjustment

4,218.88

(j) = (i-a)



The calculation determined by normative ruling no 243/02 can represent a major tax burden to taxpayers in relation to IRPJ and CSLL payment and is not supported by Law no 9430/96 and subsequent changes.

We understand that normative ruling no 243/02 may be challenged on the grounds that only a law can determine or raise taxes, while a normative ruling can merely clarify the contents of a law, according to the Brazilian Federal Constitution and Brazilian Tax Code.

It is probable that the taxpayer will be charged if it follows the provisions of normative ruling no 32/01 instead of normative ruling no 243/02 regarding the calculation of parameter price – PRL 60%. In this case, we understand that the chances of success in an administrative dispute are good since the grounds above have already been sustained by Taxpayers’ Council in similar cases.

more across site & shared bottom lb ros

More from across our site

Wim Wuyts, who had been head of the specialist tax network since 2017, is moving on to a new role with WTS’s Belgian member firm
MNEs are increasingly using algorithmic tools in TP. Sahasranshu Dash argues that data ethics should therefore plug directly into the TP design process
The Institute of Chartered Accountants in England and Wales also queried whether HMRC resources could be better spent scrutinising larger entities
Grant Thornton’s Austria tax head likens his practice to an escape room, shares his football coaching ambitions, and explains why tax is cool
Awards
ITR is delighted to reveal all the shortlisted nominees for the 2025 EMEA Tax Awards
Awards
ITR is delighted to reveal all the shortlisted nominees for the 2025 Asia-Pacific Tax Awards
The fates of pillars one and two hang in the balance after the US successfully threw its weight around in G7 and Canadian negotiations
Rafael Tena tells ITR about the ‘crazy’ Mexican market, ditching the hourly rate, and refusing to grow his fledgling firm in an ‘unstructured way’
It should be easy for advisers to be transparent about costs, Brown Rudnick partner Matthew Sharp said in response to exclusive ITR in-house data
The sprawling legislation phases out Joe Biden-era green tax incentives for businesses; in other news, the UK will reportedly maintain its DST despite US pressure
Gift this article