On January 30, Brazilian Revenue Service (RFB), introduced Normative Instruction #1,870, which updates Normative Instruction #1,312, from December 28, 2012, and deals with transfer pricing rules.

In summary, the Normative Instructions brings the following clarifications:

The moment in which the transfer pricing calculation is to be made, considering the specifics of each of the methods, as well as the moment and format as the eventual TP adjustment shall be subject to taxation;

The composition of the calculation of the practiced price and parameter price, regulating questions related to the inclusion of fright and insurance, the computation of inventory initial balances and the non-inclusion of export transactions in the average used for the parameter price;

This it ratified that the calculation of the parameter price is made on a product by product basis, through the annual arithmetic averages. This rule, However, is not applicable to the commodities method, in which the comparison between the practiced price and parameter price is made transaction by transaction;

With regards to the PCI and Pecex methods, the NI redefines the concept of commodities, bringing better regulatory comfort to the taxpayers. In addition, for these methods, this is changed the wording of some provisions, in order to eliminate eventual doubts related to the date of the exchange rate to be used in the calculation of the parameter price;

Finally, this is changed for calendar year 2019 the calculation formula for the divergence margin, bringing it closer to the international standards.

Please do not hesitate to contact PFM’s team should you like to discuss this subject and the potential impacts in your company in further detail.