BRAZIL Law and Practice Contributed by: Paulo Honório de Castro Júnior, Bruno Marques Feitosa, Matheus Di Felippo and Urick Soares, William Freire Advogados
3.4 Ranges and Statistical Measures The new transfer pricing rules in Brazil introduce the concept of “Comparable Range”. The Comparable Range should be used when the application of the most appropriate method leads to a range of observations of financial indicators of com - parable transactions carried out between unrelated parties, the appropriate range will be used to deter - mine whether the terms and conditions of the con - trolled transaction are in accordance with the arm’s length principle. When regulating the matter, the Normative Instruction establishes that the determination of the Interval of Comparable will be carried out by adopting the fol - lowing procedures: • the range must be composed of observations obtained from comparable operations; • selected observations that have a lower degree of comparability in relation to the controlled transac - tion or that are not sufficiently reliable must be eliminated; • after the elimination of these transactions, if uncer - tainties remain regarding the degree of compara - bility of the comparable transactions with respect to the controlled transaction that have not been precisely identified or quantified and adjusted or if any uncertainty regarding reliability remains, the interquartile range will be considered as the range appropriate; and • if there are no uncertainties about the degree of comparability of the comparable transactions in relation to the controlled transaction, nor about their reliability, the complete range will be consid - ered the appropriate range. In summary, there are two hypotheses for using the Comparable Interval: • in cases where the controlled transaction indica - tor is within the comparable range, the principle of arm’s length is applied; and • in cases where the controlled transaction indica - tor is not included in the comparable range, the controlled transaction will be assigned the value of
the average of the values identified in the appropri - ate range. 3.5 Comparability Adjustments Law No 14,596/2023 determines the performance of comparability adjustments, as long as they are rea - sonably precise, to eliminate the material effects of differences in relation to the controlled transaction or the tested party, observing that: • comparability adjustments to eliminate materially relevant differences should be made if, and only if, they are expected to increase the reliability of the results; • comparability adjustments must be made after applying consistent criteria to transactions between unrelated parties that reveal the highest degree of comparability; • the same difference must not be adjusted more than once using the same comparability adjust - ment, or different adjustments, so that the effect of the adjustment that eliminates the same difference multiple times is not computed; • the need to make numerous or substantial com - parability adjustments may indicate that transac - tions between unrelated parties are not sufficiently comparable; and • each adjustment must be duly justified and docu - mented, including the provision of information that demonstrates the need for each of the adjustments with reference to the differences, with demonstra - tions of the basis for making the adjustments, the procedures adopted and the calculations carried out, with details of all steps followed, variables used and results obtained in comparables. Examples of comparability adjustments are: • adjustments to accounting standards and consist - ency, including exchange rate adjustments; • adjustments for differences in functions, risk assumption, assets and capital, including working capital; and • adjustments to contractual terms, including, for example, sales conditions (volume, payment term and International Commercial Terms – Incoterm), conditions for amortisation or early settlement of debt and contractual options.
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