Provisional Measure Establishes New Transfer Price Control Rules

Provisional Measure nº 563 ("PM 563") has been announced to amend the wording of Law nº 9.430 ("Law 9430") and brought important changes in connection with the transfer price control in Brazil. It should be pointed out that PM 563 was issued in a scenario of intense litigation between the Brazilian Internal Revenue Service and the taxpayers, in particular with respect to the criteria to calculate the RPM according to Normative Instruction 243 ("NI 243").

Resale Price Method (Preço de Revenda menos Lucro - "RPM")

The main change regards the new margins for the RPM. According to the previous legislation, the parameter price (comparable) was calculated based on 20% fixed profit margins for the resale activities, and 60% in the case of local production.

According to the new rules, the RPM has only one profit margin, irrespective of resale or local production. Moreover, the concept of "percentage of the imported product" was included on Law 9430, following the example of NI 243, which had previously introduced such concept without the proper legal instrument. The new profit margins would now vary according to the economic sector, and would be changed by the Ministry of Finance on its own initiative, or by request.

In case the taxpayer is engaged in more than one sector, the applicable margin will correspond to the destination of the goods. If the goods are used in different production processes, the amount of the imported goods will be apportioned, according to the destinations. Below are the new margins:

Another relevant aspect concerns addition of the freight, insurance and import duty in the transaction price, for the purposes of comparison with the parameter price calculated according to the RPM. Under the previous wording of Law 9430 and NI 243, such costs should be added in the transaction price, which may lead to more transfer pricing adjustments. Under the new rules, the freight, insurance and import duty should no longer be added to the transaction price, provided that such costs are paid to third parties who are not resident in tax havens.

Restrictions to the method of Compared Independent Prices (Preços Independentes Comparados - "CUP")

The Provisional Measure also added restrictions with respect to the use of comparable transactions to apply the CUP method. If the comparable transactions have been carried out by the taxpayer himself, such operations must represent at...