1. In your jurisdiction, are taxpayers obliged to maintain transfer pricing documentation? Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?

There is no obligation on taxpayers to establish and maintain contemporaneous transfer pricing documentation similar to that contained for instance in the 2006 EU Code of Conduct; however, there is an obligation to provide information and supporting documentation upon the request of the tax authorities.

In the event of a tax inspection, any taxpayer that has entered into transactions relating to goods, assets, services or rights with a related party located abroad, or with a party (whether or not related) located in a tax haven or subject to a preferred tax regime, will be obliged to provide transfer pricing information and supporting documentation. The information must show the prices applied and the calculation of benchmarks.

2. What is the content of the documentation that must be prepared?

Spreadsheets containing the transfer pricing calculation together with the supporting documentation for all variables (e.g. document numbers, dates, quantities, values and currencies).

The supporting documentation must demonstrate that the information contained in the spreadsheets is correct, and will depend on the calculation method chosen by the taxpayer.

To prove the price of import transactions, the relevant documents will be as follows:

  • Import Declaration;
  • Brazilian invoice;
  • International invoice;
  • Initial and final inventory of the imported products and the finished products (where the imported product is intended for a production process); and
  • Bill of materials (to verify final inventory of the imported product where it is intended for a production process).

To prove the price of export transactions the relevant documents will be as follows:

  • Brazilian Invoice;
  • International Invoice; and
  • Bill of lading.

To prove the parameter price calculation for import transactions, the documents will depend on the method, as follows:

  • Resale Price Less Profit Method – PRL
    • Invoices in respect of internal sales of the imported product and the finished product (where the imported product is intended for a production process);
    • Bill of materials;
    • Acquisition cost of the imported goods;
    • Sales cost.
  • Comparable Independent Prices Method – PIC
    • Invoices in respect of the unrelated transactions used to calculate the benchmark.
  • Production Cost Plus Profit Method – CPL
    • Production cost information provided by the manufacturing company located abroad, which must be calculated in accordance with Brazilian accounting principles and Brazilian law.
    • The documents used to demonstrate such production costs should be copies of those which support bookkeeping entries, such as documents showing the cost of leasing, maintaining and repairing the equipment used in the production process, the apportionment of direct and indirect labour costs, and payroll information.
  • Quotation Price on Imports – PCI
    • The supporting documentation for this method is expected to be prescribed by the Brazilian Federal Revenue Service.

As to proof of the parameter price calculation for export transactions, the documents will also depend on the method, as follows:

  • Purchase or Production Cost Plus Taxes and Profit Method – CAP
    • Detailed information on the purchase or production cost, which must be supported by information on the taxpayer’s database.
  • Wholesale or Retail Price in Country of Destination Less Profit – PVA and PVV
    • Invoices in respect of sales of the exported items in the wholesale market (PVA) or retail market (PVV) of the country of destination.
  • Export Sales Price – PEVEX
    • Invoices in respect of the unrelated-party export transactions used to calculate the benchmark.
  • Quotation Price on Exports – PECEX
    • The supporting documentation for this method is expected to be prescribed by the Brazilian Federal Revenue Service.

In addition to the documents and information referred to above, the tax authorities can request a list of suppliers and clients showing their names, countries and relationships with the taxpayer (related or unrelated) including balance sheets, if requested by the authorities, and any other information that appears necessary.

a) Does this obligation apply to all taxpayers or does it apply to certain categories only (e.g., taxpayers exceeding a certain threshold of turnover, assets)?

The obligation to provide transfer pricing information and supporting documentation in the event of a tax inspection applies to all taxpayers that have entered into transactions relating to goods, assets, services or rights with a related party located abroad or a party (whether or not related) located in a tax haven or benefiting from a privileged tax regime.

b) Which transactions must be documented (all transactions with associated enterprises, or only those which exceed a particular threshold)?

All transactions capable of influencing the price applied, or the parameter price, must be documented. Note that documentation concerning transactions with unrelated parties can also be demanded (for example, internal market purchases of the same item that is imported from a related party).

c) What is the definition of “associated enterprises” for the purposes of this requirement?

The concept of the “associated enterprises” or related parties of the Brazilian legal entity encompasses (i) its branches; (ii) its headquarters; (iii) its controlled companies; (iv) its controlling shareholders (individuals or legal entities); (v) companies under common corporate or common management control; and (vi) its managers; and / or (vii) relatives by blood or marriage, up to the third degree, spouses, or significant others, of the managers or of the controlling shareholders.

Additionally, the Brazilian legislation treats as related-party transactions those entered into with (i) the Brazilian legal entity’s foreign affiliated companies as defined by article 243, paragraphs 1 and 2 of Law 6404 / 76 – Brazilian Corporation Law; (ii) foreign companies, when the same individual or legal entity holds an equity stake of at least 10% in both the foreign company and the Brazilian legal entity; (iii) foreign individuals or legal entities who, together with the Brazilian legal entity, hold an equity stake in a third legal entity that qualifies them as controlling shareholders or affiliated in relation to this third legal entity; (iv) companies that participate with the Brazilian legal entity in a joint enterprise, under a ‘consortium’ or ‘condominium’, as defined by the Brazilian law; (v) foreign legal entities that grant to the Brazilian legal entity (as their agent, distributor or dealer), exclusive rights to buy or sell assets / goods / services / rights; and (vi) foreign agents, distributors or dealers of the Brazilian legal entity, to whom the latter has granted exclusive rights to buy or sell assets / goods / services / rights.

It is important to emphasise that the transfer pricing legislation applies to related party transactions, as described above, even where they are effected through an interposed person, and to transactions entered into with a party (whether or not related) located in a low tax jurisdiction or under a privileged tax regime.

d) For EU countries, is the content of the documentation similar to that described in the EU Code of Conduct on transfer pricing documentation for associated enterprises (“EU TPD”)? If not, are taxpayers entitled to choose between the local requirements and the EU TPD?

Not applicable.

e) Do taxpayers which are not established in your jurisdiction need to undertake to provide any specific information upon request? Can your tax authorities require the taxpayer in your jurisdiction to provide information which is located in another state?

No. The Brazilian tax authorities have no jurisdiction over foreign persons. However, the Brazilian tax authorities may request from the Brazilian taxpayer any document capable of showing that the information used to the transfer pricing calculation is accurate, including external information that could be located in a foreign jurisdiction (e.g. invoices used in the PIC method calculation; costs used in the CPL method calculation and invoices used in the PVA or PVV method calculation).

f) If comparable studies are to be provided, do the tax authorities generally accept regional benchmark studies (e.g. pan-European benchmark studies)?

The problem is that there is no database of comparables in Brazil; so the comparable analysis is very limited. In effect, the Brazilian tax authorities may choose to consider comparables of any kind and the taxpayer is in a very difficult position in this respect.

However, the Brazilian transfer pricing legislation states in article 21 of Law 9430 / 96 and in article 29 of Normative Instruction 243 / 02 that comparable information may be used and is to be based on:

  • I Official publications or reports from the government of the country of origin of the seller or buyer, or a declaration from the tax authorities of that country where it has a double taxation or information exchange treaty with Brazil;
  • II Market research conducted by a recognized, technically qualified firm or institution or technical publication, which specifies the industry sector, period, companies researched and profit margins, and identifies, for each company, the data collected and analysed.

Publications, research and technical reports will only be accepted as evidence if carried out in accordance with internationally accepted appraisal criteria and referable to the concurrent IRPJ tax computation period of the Brazilian entity.

Additionally, the price information acceptable as evidence comprises:

  • I National stock market quotations;
  • II Quotations from internationally recognized stock markets, such as those in London and Chicago;
  • III Research conducted by international organizations, such as the Organization of Economic Cooperation and Development (OECD) and the World Trade Organization (WTO).

It is also stated that technical publications, research and reports may be rejected by the tax authorities if deemed to be inconsistent or unreliable.

Given the extreme bureaucracy, and the prospect of research and reports being rejected by the tax authorities, comparable studies are difficult and unusual.

g) What language(s) are to be used by taxpayers in submitting the transfer pricing documentation?

All documents must be submitted in Portuguese; it is possible to submit a notarised and “consularised” copy of the document, duly translated by a sworn translator. There is no need for “consularisation” where Brazil has an appropriate treaty with the country in question, as it does for example with France.

3. What is the deadline or timescale for providing transfer pricing documentation to the tax authorities (is it to be provided for example upon filing of the tax returns, at the beginning of a tax audit, or on the specific request of the tax authorities)?

Generally speaking, in the event of a tax audit the enterprise has to respond to any request from the tax authorities within a period of 20 days. However, any transaction with a foreign related party must be notified by the Brazilian taxpayer in its annual income tax return (DIPJ). Information on transactions with foreign related parties should be presented in an appendix to the taxpayer’s annual tax return that is generally requested to be filed on 30 June of the subsequent year.

4. In the event that the documentation is not provided within the applicable timescale, or is incomplete, do documentation-related penalties apply in your jurisdiction? If so, please detail the penalties and the circumstances in which they do and do not apply.

There is no documentation-related penalty. However, if the tax authorities’ calculation results in a transfer pricing adjustment different from that calculated by the taxpayer, interest and fines of 75% will apply.

5. Does the absence or incompleteness of documentation reverse the burden of the proof as regards the arm’s length character of the transactions?

In all instances, the burden of proof is on the taxpayer; so the question is not relevant as regards Brazil.

6. In the event that the tax authorities (i) impose documentation-related penalties and (ii) make a transfer pricing reassessment, does the imposition of documentation-related penalties prevent the taxpayer from initiating any mutual agreement procedure which may be contained in an applicable tax treaty (or, for EU countries, the procedure contained in the EU Arbitration Convention) with a view to eliminating any double taxation resulting from the transfer pricing reassessment?

The issue in Brazil is that there is no experience of the tax authorities agreeing to discuss a case under the Mutual Agreement Procedure; although some tax treaties make provision for such a procedure, the tax authorities have taken a general position that they will not implement it.


Agnès de l'Estoile-Campi
Luís Rogério G. Farinelli
Machado Associados