1. Ilona Tangey Villaverde, BIAC Tax committee 1 March 2018
OECD TP STANDARD & BRAZILIAN APPROACH: CHALLENGES AND OPPORTUNITIES Business Perspective
Ilona Tangey Villaverde, BIAC Tax committee
1 March 2018

2. OECD TP Standard & Brazilian Approach: Key messages
The OECD Transfer Pricing Guidelines outline a principles-based approach to determine the “Arm’s Length” prices.
The objective of ensuring that all transactions are priced consistently (regardless of commercial and financial relations between the parties) requires analysis of all relevant functions, assets and risks, to select “the most appropriate method”.
Our members report that in Brazil, “Arm’s Length” prices are more prescriptive; generally calculated instead with reference to prices (/margins) set in legislation, with limited consideration of the functions, assets, and risks that each party undertakes.
Accordingly, our members report many examples where the prices reflected for Brazilian tax purposes do not match the prices that must be reflected in countries that follow the OECD Standard.
The relative complexity of the Brazilian tax system (and lack of treaties) have been highlighted as additional barriers to achieving transfer pricing outcomes that are consistent between Brazil and those countries following the OECD Standard.
Where the OECD approach requires a functional analysis,
the Brazilian approach is more prescriptive 2

3. Pricing Concerns: Examples which result in double taxation
PRL method (equivalent to the Resale Price Method in OECD approach)
Fixed Gross Margins to be applied (20%, 30% or 40%) based on business sector or activity.
Service fees: Cost + 15%
PECEX (Price Under Quotation on Exportations Method) mandated for the Mining Industry, relies on prices published by international commodities futures and exchanges
PIC Method (equivalent to OECD CUP method)
Local comparables not reflective of the international market in which MNE’s operate.
Software royalties: Significant limitations on what qualifies as a software royalty (and challenges on corporate tax deductions).
Trademark royalties: Fixed rate of 1%.
PRL: There is no consideration of the functions, assets or risks being assumed by the tested party and does not permit adjustments to reflect these. Moreover the classification of sector and activity are not always clear.
PECEX: without consideration of the functions, risks and assets being assumed by the tested party nor the value created in the supply chain.