1. Alternative to the focus on the arm's length principle: The Brazilian approach Buenos Ayres, April 2013 General Assembly of CIAT

2. Positive Aspects and Opportunities for Improvement Developments in the Brazilian Legislation Transfer Prices in Brazil 01 02 03 Sumário 2 Ministério da Fazenda

3. Transfer Prices in Brazil 01 3 Ministério da Fazenda Applicability: Operations for Import and Export of: Goods Rights or Services (including interest) Carried out by residents or domiciled in Brazil with related parties that are residents or domiciled abroad;

4. Transfer Prices in Brazil 01 4 Ministério da Fazenda Applicability: Examples of related parties with the Brazilian corporations: Head-office, agency or branch domiciled abroad; Controlled or related corporation domiciled abroad (Individual Taxpayer or Corporation); Corporation located abroad under common share control; An associated corporation domiciled abroad (Individual or Corporation); Individual domiciled abroad, relative or similar up third degree relation with the directors and controllers of the Brazilian corporation; Exclusive agent of the Brazilian corporation domiciled abroad (Individual or Corporation);

5. Transfer Prices in Brazil 01 5 Ministério da Fazenda Applicability: Independent of association, in the carried out transaction: By an interposed entity, which operates with another one domiciled abroad that is associated with the Brazilian corporation. With any Individual or Corporation domiciled in a tax heaven: -Country or dependency that does not tax income or tax it at a rate of less than 20%; or -Country whose legislation does not allow access to the composition or equity ownership of legal entities. In country or dependency with a Privileged Taxation Regime that: -Grants tax advantage to the non domiciled Individual or Corporation, without requiring substancial economic activity or conditioning to not performing that economic activity.

6. Methods of Import/Export (Law No. 9,430/96) 1.1 6 Ministério da Fazenda

7. 7 Methods in Importation IMPORT MethodMargin PIC – Compared Independent Prices N/A PRL – Resale Price minus Margin 40% (farmachemicals, tabacco, optical, photographic and cinematographic instruments, dental, medical and hospital equipment, oil) 30% (chemmicals, glass, cellulose, paper, metalurgy) 20% (other sectors) CPL – Production Cost plus Margin 20% PCI – Price under Quotation in Imports N/A (Commodities)

8. 8 Ministério da Fazenda Methods in Exportation EXPORT MethodMargin PVEx – Export Sales Prices N/A PVA – Wholesale Price at Destiny, minus Margin 15% PVV – Retailer Price at Destiny, minus Margin 30% CAP – Acquisition or Production Cost plus Taxes and Margin 15% PECEX – Price under Quotation in Exports N/A (Commodities)

9. Developments in the Brazilian Legislation 02 9 Ministério da Fazenda

10. 10 Transfer Prices in Brazil Defining hypothesis for disqualification of the method that was elected by the taxpayer – not showing useful elements for verifying the calculation (administrative litigation); Recent Changes in the Brazilian Legislation Creation of specific methods for import and export of commodities – PCI and PECEX. End of the method PRL 60 – Margin considered high by the taxpayers; Creation of the sector margins of 40% and 30% in the method PRL – Development of margins that are compatible with certain activities;

11. Positive Aspects and Opportunities for Improvement 03 11 Ministério da Fazenda

12. 12 Positive Aspects of the Brazilian Model Existence of multiple methods; Respect to the method chosen by the taxpayer; Margins expressly defined by law: Legal security; Objectivity in the calculation; Possibility of reviewing the margins;

13. 13 Ministério da Fazenda Positive Aspects of the Brazilian Model Methods for commodities: Parameters defined by the stock exchange; Low degree of discretion by the administration; More objective methods for services and intangibles.

14. 14 Ministério da Fazenda Critics and Opportunities for Improvement Fixed margins (equiparation of distinct sectors): Possibility for creation of sector margins; Complexity of calculation in the production chain: Computerized auxilliary tools (calculation method is the same for several taxpayers);

15. 15 Ministério da Fazenda Critics and Opportunities for Improvement “Differentiated” Commodities: Possibility of adjustment based on the medium prize Correlative adjustments: Brazil does not adopt them due differences in methodology.

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