BRAZIL Law and Practice Contributed by: Paulo Honório de Castro Júnior, Bruno Marques Feitosa and Urick Soares, William Freire Advogados
as outlined, the transaction may be disregarded or replaced with an alternative transaction for the purpose of determining the terms and conditions that would be established by unrelated parties in comparable circumstances and acting in a com - mercially rational manner. It should be noted that the new legislation is guided by the primacy of the economic sub - stance over the legal form, in such a way that for the purposes of applying the transfer pric - ing rules, the real economic content intended must be found, even if contrary to the legal form adopted by the parties to regulate the transac - tion. Once the content and economic objective of the transaction are known, it is verified whether the interactions between the parties adapt to the conduct usually observed in market transac - tions. If there are deviations in the interaction between the related parties, there is a need to make adjustments, as will be the case explained in the following paragraphs. Comparability Analysis Procedures The comparability analysis must be carried out for the purpose of comparing the terms and conditions of the controlled transaction, with the conditions that would be established in market operations, considering for this purpose: • the economic delineation of the operation; • determining the period to be covered in the analysis; • verification of the existence of comparable operations (carried out with unrelated parties); • the selection of the most appropriate method and, depending on the method, the choice of the profitability indicator and the tested party; • the identification of potential comparables, including the determination of the essential
characteristics that must be present in any transaction between unrelated parties so that it can be considered potentially compa - rable, taking into account the design of the controlled transaction and the comparability factors; • identifying and making reasonably accurate comparability adjustments when appropriate; and • the interpretation and use of the data col - lected 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 identi - fied, proof of suitability of the tested transac - tion must occur by using the most appropriate method among those provided for in the govern - ing legislation. There is another relevant innovation: the previ - ous rule allowed taxpayers to adopt the method of their preference. The new legislation deter - mines the choice of the most appropriate meth - od among the following. • Comparable Independent Price (PIC) – which consists of comparing the price or consid - eration 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 con - sists 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.
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