BRAZIL Law and Practice Contributed by: Paulo Honório de Castro Júnior, Bruno Marques Feitosa, Matheus Di Felippo and Urick Soares, William Freire Advogados
• the identification of potential comparables, includ - ing the determination of the essential charac - teristics that must be present in any transaction between unrelated parties so that it can be consid - ered potentially comparable, taking into account the design of the controlled transaction and the comparability factors; • identifying and making reasonably accurate com - parability adjustments when appropriate; and • the interpretation and use of the data collected with the determination of appropriate remuneration in accordance with the arm’s length principle. Application of Methods Once the economic content has been outlined and the comparable operation has been identified, proof of suitability of the tested transaction must occur by using the most appropriate method among those pro - vided for in the governing legislation. There is another relevant innovation: the previous rule allowed taxpayers to adopt the method of their prefer - ence. The new legislation determines the choice of the most appropriate method among the following. • Comparable Independent Price (PIC) – which consists of comparing the price or consideration value of the controlled transaction with the prices or consideration values of comparable transactions carried out between unrelated parties. • Resale Price minus Profit (PRL) – which consists of comparing the gross margin that an acquirer of a controlled transaction obtains in the subsequent resale carried out to unrelated parties with the gross margins obtained in comparable transactions carried out between unrelated parties. • Cost Plus Profit (MCL) – which consists of com - paring the gross profit margin obtained over the supplier’s costs in a controlled transaction with the gross profit margins obtained over the costs in comparable transactions carried out between unrelated parties. • Transaction Net Margin (MLT) – which consists of comparing the net margin of the controlled trans - action with the net margins of comparable transac - tions carried out between unrelated parties, both calculated based on an appropriate profitability indicator.
• Profit Sharing (MDL) – which consists of the division of profits or losses, or part thereof, in a controlled transaction in accordance with what would be established between unrelated parties in a comparable transaction, considering the relevant contributions provided in the form of functions performed, assets used and risks assumed by the parties involved in the transaction. The most appropriate method is that which provides the most reliable determination of the terms and con - ditions that would be established between unrelated parties in a comparable transaction, including the fol - lowing aspects. The PIC method will be considered the most appro - priate when there is reliable information on prices or consideration amounts arising from comparable transactions carried out between unrelated parties, unless it can be established that another method is more appropriately applicable. The legislation under discussion determines that this is the preferred meth - od adopted for transactions with commodities. Tested Party Another innovation to be highlighted is the concept of “tested party”. Unlike the provisions then in force in Law No 9,430/1996, which determined that the transfer pric - ing test be carried out from the perspective of the Brazilian taxpayer, Law No 14,596/2023 brings the possibility that the tested party is the entity abroad, when the method can be applied more appropriately and for which more reliable data from comparable transactions carried out between unrelated parties is available. It should be noted the alignment of this new rule with the OECD Guidelines, which define tested party as “that to which a transfer pricing method can be applied in the most reliable way and for which the most reliable comparable can be found, that is, most of the time it will be the one that has the least complex functional analysis.”
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