Global Tax Alert (News from Transfer Pricing)| 4 October 2013

Normative Instruction 1,395/2013 amends Brazilian transfer pricing regulations for commodities

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On 17 September 2013, the Brazilian Federal Revenue Office (RFB) enacted Normative Instruction (IN RFB) 1,395/2013, with the intention of amending and clarifying IN RFB 1,312/2012, which provided guidance on the PCI (Price Valuation on Imports Method) and PECEX (Price Valuation on Exports Method) methods.


Law No. 12,715/2012, enacted last year, provided significant changes to the Brazilian transfer pricing rules. One of the primary changes was the enactment of specific rules for related party pricing of products considered commodities. The change introduced two new mandatory transfer pricing methods for the import and export of products considered commodities between related parties known as the PCI and PECEX methods.

As previously mentioned, in EY Global Tax Alert, Brazil amends transfer pricing rules: New rules for deductibility of intercompany interest and new normative instruction, dated 9 January 2013, Normative Instruction (IN RFB) 1,312/2012, enacted by the Brazilian Federal Revenue Office (RFB), provided guidance regarding the application of the aforementioned methods. Specifically, IN RFB 1,312/2012:

  • Defined that commodities subject to the application of the PCI and PECEX methods are products listed in Appendix I and products traded in the commodities and futures exchanges listed in Appendix II.
  • Established the possibility of adjustments in relation to variations of quality, features, and content of the substance of the product sold.
  • Established that in the absence of a quotation on the transaction date, the quotation to be used is the latest one available. In addition, in case it is not possible to identify the transaction date, the date to be used is that of the import documentation or the product ship date for export purposes.
  • Established that, in the absence of a quotation of the goods in the commodities and futures exchanges (Appendix II), the prices of the imported and exported goods should be compared to those provided by the internationally recognized research institutions (Appendix III).

IN RFB 1,395/2013

Clarified definition of a commodity for transfer pricing purposes

For IN RFB 1,395/2013, a product should be considered a commodity for Brazilian transfer pricing purposes when one of following two conditions is observed:

  • The products listed in Appendix I are also 1) listed on commodities and futures exchanges listed in Appendix II or 2) subject to public prices in the internationally recognized research institutions as listed in Appendix III of IN RFB 1,312/2012; or
  • The products are listed in commodities and futures exchanges listed in Appendix II of IN RFB 1,312/2012

This change clarifies that a product that is not listed in Appendix I or II but in one of the publications listed in Appendix III should not be considered a commodity and, therefore, be subject to the general transfer pricing methods. The same applies for products that are listed in Appendix I but not traded on a commodity exchange listed in Appendix II or quoted in a publication from one of the recognized research institutes.

Further guidance for pricing adjustments

IN RFB 1,312/2012 established that prices could be adjusted solely due to the costs of transportation and climate differences, in addition to premium and content adjustments. As shown below, IN RFB 1,395/2013 provides a more extensive list of potential adjustments:

  • Payment terms
  • Volume differences
  • Climate influence on the characteristics of the imported good
  • Intermediation costs on the sale and purchase operations executed between non-related entities
  • Packaging
  • Freight and insurance

Definition of the transaction date

IN RFB 1,395/2013 clarifies that the transaction date is the date when the price of the product is negotiated under normal business practice of the company with unrelated parties, or consistent with normal market behavior. This clarification is intended to reduce the uncertainty that arose under the previous wording, which was unclear as to whether the date of negotiation, date of entering into an agreement or date of shipment or delivery would be considered the transaction date.

Additionally, IN RFB 1,395/2013 establishes that if the intercompany price is calculated based on average quotations or indexes related to a period of days, determined in contract, the calculation of benchmark price (PCI or PECEX) should also take into consideration the same time period.

Choice of the commodities and futures exchanges and the possibility of using an internal comparable

For the PECEX method (export transactions), IN RFB 1,395/2013 provides two alternatives when there are differing quotations on various exchanges:

  • The exporter should choose the quotation in the destination market, in the absence of a single quotation in a commodities and futures exchange; or
  • The exporting legal entity may use a price of a good sold to a non-related party or a party not resident in a low tax jurisdiction or benefited by a privileged tax regime, in the absence of a quotation in the exchanges or research institutions or, if a quotation is available, and the product is significantly different in relation to the quotation in the market of destination.

In the above mentioned case, IN RFB 1,395/2013 allows the possibility of using exports to third parties (internal comparable) instead of quotations in exchanges as a form of testing the export prices. In order to use internal comparables, the transactions must represent, at least, 5% of the value of intercompany export operations subject to transfer pricing, during the period under analysis.

Amendments to Appendices I and III

IN RFB 1,395/2013 amends the following product descriptions of Appendix I of IN RFB 1,312/2012:

  • VIII – From “Copper and articles thereof (NCM 74)” to “Copper ore and its concentrates (NCM 2603.00)”
  • IX – From “Tin and articles thereof (NCM 80)” to “Tin ore and its concentrates (NCM 2609.00)”
  • IX – From “Cast iron, iron and steel (NCM 72)” to “Iron ore and its concentrates (NCM 26.01)”
  • XIV – From “Manganese and articles thereof, including wastes and residues (NCM 8111.00)” to “Manganese ore and its concentrates (NCM 2602.00)”

In Appendix III of IN RFB 1,312/2012, the following internationally recognized research institutions were added:

  • CIS
  • CMAI
  • US Energy Information Administration (EIA)

For additional information with respect to this Alert, please contact the following:

Ernst & Young Serviços Tributários S.S., Sao Paulo
  • Werner Stuffer, Transfer Pricing
    +55 11 2573 3902
  • Gil Mendes, Transfer Pricing
    +55 11 2573 3466
  • Demétrio Barbosa
    +55 11 2573 3486
  • Janaína Costa
    +55 11 2573 3734
  • Caio Albino de Souza
    +55 11 2573 3301
Ernst & Young Serviços Tributários S.S., Rio de Janeiro
  • Marcio R. Oliveira
    +55 21 3263 7225
Ernst & Young Serviços Tributários S.S., Campinas
  • Leandro Cassiano
    +55 19 3322 0556
Ernst & Young Serviços Tributários S.S., Porto Alegre
  • Felipe Mauer
    +55 51 3204 5574
Ernst & Young Serviços Tributários S.S., Belo Horizonte
  • Maira Costa Alves
    +55 31 3232 2114
Ernst & Young Serviços Tributários S.S., Curitiba
  • Aline Weiss
    +55 41 3593 0770
Ernst & Young LLP, Brazilian Tax Desk, New York
  • Ingrid Berner
    +1 212 773 2539
Ernst & Young LLP, EMEIA Tax Desk, London
  • Felipe Fortes
    +44 20 7806 9054

EYG no. CM3843