Guido Mantega, the Brazilian Finance Minister published Ordinance 563, on December 30 2011, stating Brazilian companies can increase their export revenue for 2011 for transfer pricing purposes only.
“In practical terms, for each real as export revenue, according to this measure, the exporter will consider R$1.11 ($0.62) as export revenue, only for complying with the Brazilian transfer pricing guideline,” said Fernando Matos of Deloitte. “Please, keep in mind that this revenue increase will not cause any impact on the accounting book nor in the financial statement or financial report.”
Companies can increase their export revenue based on the ratio 1:11 on the 90% statutory harbour and the CAP method only. By way of normative instruction 1233, published January 4, companies can also apply the ratio to 5% net income relief of proof.
The CAP method (purchasing or production cost plus taxes and profit) is one of the methods that can be used by the companies to calculate the transfer pricing adjustment. According to this method, the benchmark shall result from the arithmetic weighted average of purchasing or production costs of the exported assets, goods, services, or rights plus Brazilian taxes and a 15% profit margin over the total amount.
“In our Brazilian transfer pricing rules, we have some different safe harbour: Once the net sales price on export transaction is higher than 90% of the net sales price within Brazilian Market, this export transaction complies with transfer pricing guidelines; and once the total net profit from export transaction, as profit before income tax, is higher than 5% of the total net revenue, also the export transaction complies with transfer pricing guidelines,” said Matos.
The appreciation of the currency in Brazil is a continuing problem and the measures are to protect Brazilian exporters’ incomes. As the gap widens between the real and the dollar, Brazilian exporters are losing income on the trades.
“According to these measures, in order to eliminate the exchange variation effects, taxpayers were authorised to multiply: Their export revenues for comparison with sales of the same goods, services or rights in the domestic market, when applying the 90% export safe harbour; their export revenues to related parties in the calculation of the 5% net profits safe harbour; and the price in exports to related parties to be compared with the corresponding benchmark based on CAP method by the following ratios according to the tax base period,” said Cristiane Magalhães of Machado & Associados.
Year Ratio Ordinance
2005 1,35 436/05
2006 1,29 425/06
2007 1,28 329/07
2008 1,20 310/08
2009 1,00 Normative Instruction 1010/10
2010 1,09 04/11
2011 1,11 563/11
“Every year the government issues a normative instruction to avoid the taxation of transfer pricing adjustments arising from the exchange variation effects,” said Iara Maria do Amaral of Machado & Associados. “Usually, they have the same wording, being replaced only the ratio to be used on the current year.”
