The Brazilian government made extensive changes to the existing transfer pricing regulations that will come into effect starting in 2013. These modifications, found in the Provisional Measure (“PM”), address several issues including adjustments to the resale price method and commodity transaction methods and interest on related-party loans.
In Brazil, the resale price method requires a 20 percent mark-up except when sectors involved in the manufacture of pharma-chemical and pharmaceutical products, tobacco products, optical equipment and instruments, and photographic and cinematographic equipment; machinery, apparatus, and equipment used for dental, medical, and hospital use; oil extraction and the production of natural gas and the manufacture of oil-derivative products. In these instances, the required mark-up is 40 percent. Additional, a 30 percent markup is required with respect to sectors involved in the manufacture of chemicals; glass and glass products; pulp, paper, and paper product; and metallurgy. If taxpayers meet more than one of these criteria, then the industry sector for which the goods were destined determines the mark-up percentage.
New transfer pricing methods will apply to commodities transactions. Under these new regulations, the “safe harbor” benefit will be eliminated. The quotation price on imports method (PCI) applies for inbound transactions, and is based on the average daily price of goods or rights as recognized on an international futures and commodities exchange. Also, the quotation price on exports method (PCEX) applies for outbound transactions, and is based on the average daily price of goods or rights as recognized on an international futures and commodity exchange.
These new regulations also limit and specify the amount of interest payments or credits in related party loans that are deductible for corporate income tax purposes.