Transfer pricing´s documentation in Brazil on imports

The operations performed between related parties shall be documented according to Brazilian Transfer Pricing rules in order to guarantee the deductibility of the costs/expenses they create in the local books.

As widely known, Brazil is not a member of the Organization for Economic Co-operation and Development (OECD). In this context, the arm’s length price, in most cases, is achieved based on the standard margins defined by the methods stated by the law. In that sense, Brazilian Transfer Pricing regulation is rather aggressive in its dispositions to guarantee there is taxable income registered at the Brazilian side of controlled transactions.

The documentation/calculation to support the transfer price must be chosen for each imported item (under the same controlling code) it is also valid for service and intangible goods, applying the methods below.

• PIC method (Preços Independentes Comparados– Compared Uncontrolled Prices)
• PRL method (Preço de Revenda Menos Lucro – Resale Less Markup Price)
• CPL method (Custo de Produção Mais Lucro – Cost Plus Markup)
• PCI method (Preço sob Cotação na Importação – Quotation Price on Imports – for commodities)

The minimum price that can be considered arm’s-length on imports’ transactions is documented/calculated based on the methods described above– it is the limit for deductibility of imports costs/expenses.

Therefore, if the average price performed between the related parties is higher than the price calculated using the methods described, the excessive cost/expense shall be added-back to the tax base of Corporate Income Tax.

In general, any of the documentation/calculation methods can be employed to demonstrate the fiscal control of TP for each kind of imported asset/service/intangible goods (under the same controlling code). That allows the taxpayer to opt for the most beneficial calculation result.