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2021 | OriginalPaper | Chapter

Brazil

Authors : Cristiane Drumond Vieira, Luis Fernando Cibella

Published in: Intangibles in the World of Transfer Pricing

Publisher: Springer International Publishing

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Abstract

The control of transfer pricing in Brazil was initiated by the enactment of Federal Law 9,430/1996 (in force as of January 1, 1997). In Brazil, the transfer pricing regime is applicable to cross-border transactions that take place, inter alia, between:

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Federal Law 9,430/1996 has been modified several times in recent years, including by Laws 10,451/2002, 10,637/2002, 10.833/2002, 11,196/2005, 11.727/2008, and 12,715/2012, which introduced relevant modifications to the statutory fixed margins imposed under the resale price method for imports (known as PRL) and a new method for commodities. In addition, the old regulations were replaced by Normative Instruction 1.312/2012 issued by the Brazilian Federal Revenue Secretariat (RFB), as amended.

“Brazil is one of the most active Key Partners of the OECD. Taking advantage of its Key Partner status, Brazil currently adheres to many OECD Legal Instruments and participates in multiple OECD Bodies.” See https://www.oecd.org/latin-america/countries/brazil/#d.en.352161.

The Brazilian government presented a letter to the OECD on May 29, 2017, communicating its formal request to initiate the process of becoming an OECD member country. Signed by the Minister of Foreign Affairs and the Minister of Finance, the letter states that the request is “part of a wider strategy of the Brazilian government to consolidate a path to sustainable and inclusive development.” Brazil is one of the many non-member economies with which the OECD has working relationships, dating back to 1994. More recently, Brazil has participated in the BEPS project, and has introduced measures to implement the mandatory exchange of rulings under Action 5 and Country-by-Country Reporting under Action 13. See Deloitte’s “Government formally requests to initiate accession to OECD,” available at: https://www.taxathand.com/article/6937/Brazil/2017/Government-formally-requests-to-initiate-accession-to-OECD-.

In addition to the language used in the rules that focuses on material characteristics applicable only to goods (such as inventory, cost of goods sold, customs clearance, etc.), in the last two decades since the enforcement of the transfer pricing regime in Brazil we have no knowledge of an administrative or judicial decision dealing primarily with services or rights.

However, it is important to note that a “divergence margin” of up to 5% between the practiced transfer price and the parameter transfer price, determined pursuant to the application of a transfer pricing method is allowed (as a result, no transfer pricing adjustment is imposed).

According to the Finance Ministry Ordinance 222/08, a taxpayer may make an application to the Ministry of Finance for a permission to use a margin that is different to the statutory fixed margins.

Arts. 9 §1°, 10, and 22 § 1° and 24 of Normative Instruction (IN) 1,213/12) provides that certain adjustments may be made to account for differences in payment term, quantities traded, guarantees, advertising obligations, packaging, freight and insurance, customs duties, inter alia.

Royalties are subject to specific deductibility rules, provided they were recorded by the Brazilian Patent and Trademark Office and by the Brazilian Central Bank when remitted abroad.

For example, scientific or technical knowledge, design and implementation of new processes or systems, licenses, intangible property, market knowledge, name, reputation, image, and trademarks (including trade names and titles of publications). Examples of items that fit into these broad categories are software, patents, copyrights, movie rights, customer lists, mortgage rights, fishing licenses, import quotas, franchises, customer or supplier relationships, customer loyalty, market share, and marketing rights. See Technical Pronouncement of the Accounting Committee (“CPC”) 15 “Business Combinations” and CPC 04 “Intangible Assets.”

See CPC 15 (“Business Combinations”) item 4.

Such deductibility limitations imposed by the Brazilian authorities were recently the source of an international contention. On March 3, 2013, the 3M Company (3M) filed a petition in the U.S. Tax Court (3M Co. v. Comr., T.C., Docket No. 5816-13) challenging the U.S. Internal Revenue Service (“IRS”) attempt to reallocate income between related parties when the foreign party is subject to domestic legal restrictions to the amounts remitted to the U.S. taxpayer. In the case, the IRS claimed that 3M do Brasil LDTA (“3M Brazil”), a Brazilian 3M subsidiary, paid royalties in 2006 to 3M below what it considered an arm’s length amount for the use of certain patents and trademarks. However, the taxpayer argued that 3M Brazil was prevented by Brazilian law from paying higher royalties, and therefore, the attempt of the IRS to reallocate income under such conditions was arbitrary and capricious.

In the case of the SaaS model the software provider is responsible for all the structure necessary to make the system available, and the customer uses the software via the internet, paying a value for the service offered, but without necessarily acquiring the licenses (which fall under the category of “rights,” as we mentioned) and without acquiring any physical media (which would fit into the concept of “goods”).

CPC 04, “Intangible Assets”.

CPC 15, “Combinations”, item 4.

Deloitte, April 6, 2017, Government formally requests to initiate accession to OECD. https://www.taxathand.com/article/6937/Brazil/2017/Government-formally-requests-to-initiate-accession-to-OECD-.

Finance Ministry Ordinance, 222/08.

Title: Brazil
Authors: Cristiane Drumond Vieira
Luis Fernando Cibella
Publisher: Springer International Publishing
Book: Intangibles in the World of Transfer Pricing
Print ISBN: 978-3-319-73331-9

Electronic ISBN: 978-3-319-73332-6

Copyright Year: 2021
DOI: https://doi.org/10.1007/978-3-319-73332-6_25

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