Selecting the most appropriate transfer price method, while taking into considering various factors, was the topic of discussion of the second roundtable on the subject held at KLA Advogados this Tuesday, May 16th. The series of monthly meetings are coordinated by KLA Tax Law partners Victor Polizelli, Henrique Lopes, Juliana Nunes and Luís Flávio Neto with the participation of economist and lawyer Marcelo Laplane.
Clients and those interested in the subject attended the event that took place shortly after the Senate approved Provisional Measure [MP] 1,152/2022 that introduces the new transfer pricing rules in Brazil. Under the provisions, the new legislation becomes mandatory as of 2024 while still optional in 2023. The MP is pending presidential approval, which is expected by May 31st.
The text outlines amendments to the federal legislation that govern the Corporate Income Tax (IRPJ) and the Social Contribution on Net Profit (CSLL), hence overhauling the transfer pricing rules to enhance Brazilian legislation on international taxation. The new rules follow the directives of the OECD (Organization for Economic Cooperation and Development) that are being standardized by the Federal Revenue Service of Brazil.
During the event, KLA partner Victor Polizelli addressed the factors that must be considered when selecting the most suitable transfer pricing method. Among said factors are the suitability of the method (in relation to the specific transaction under consideration with a focus on risk-asset functions – FAR), the availability of data (based on reliable information on comparable transactions between unrelated/unconnected parties) in addition to the degree of comparability (between controlled and uncontrolled transactions, in addition to the reliability of adjustments).
With active participation of the attendees, Polizelli also debated the pros and cons of preferring the PIC (Comparable Independent Price), PRL (Resale Price Less Profit), MLT (Transaction Net Margin), MCL (Most Profit Cost) and CDM (Profit Division), among other aspects.
On a point of law, Polizelli explained that the market seeks to evaluate and understand which method is deemed most suitable to reconcile the business activities carried out. Defining the most appropriate method represents the sixth of nine steps of the guidelines set out to conduct the analysis of comparability. The steps that follow are:
- determination of comparable potential (art. 9, III)
- implementation of adjustments (article 5, II and article 11, paragraph 1, III)
- interpretation and determination of the arm’s length price, or arm’s length principle (art. 9, V and VI).
The series of in-person roundtable events are to be hosted by KLA in São Paulo and run until November from 8:30 am to 10:30 on the day. Topics to be covered in the upcoming events are:
- 6/13 – Outline, comparison and comparability analysis
- 8/15 – Topics covered in the Normative Instruction
- 9/12 – Intangible rights/assets and loans (debt transactions)
- 10/17 – Intragroup services and cost sharing
- 11/14 – Documentation (master file and local file)
To register for any of the above dates, click here and send us an email with your full name, the company you work for and dates of preference. The events are in-person only, and places are limited.