Brazil: Superior Court of Justice rules out illegal Methodology to calculate the PRL 60 Method

On October 4, 2022 the 1st panel of the Superior Court of Justice conclude the judgement of ARESP 511.736/SP, ruling out the calculation methodology of the 60% Profit Price Less Profit Method (“PRL 60”) provided for in paragraph 11 of Article 12 of Normative Instruction SRF 243/2002 (“IN SRF 243/2002”) (until Law 12715/2012 came into force).

The PRL 60 is a method to calculate the benchmark for imported goods. It was introduced into the Brazilian legal system by Law 9959/2000, which gave new wording to item II of Article 18 of Law 9430/1996, and was in effect until Law 12715/2012 came into force. The PRL 60 method involves the use of a fixed profit margin of sixty percent for the Brazilian legal entity for calculating the benchmark on imported goods destined for manufacturing, regardless of the economic background.

Through IN SRF 243/2002, the Brazilian Federal Revenue Service introduced a new benchmark calculation criterion for PRL 60 which differs to the benchmark calculation described in Law 9959/2000.

According to Law 9959/2000, the PRL 60 method involves the arithmetic weighted average of the resale price of goods, minus unconditional discounts, taxes levied on sales, commissions paid and the 60% profit margin, calculated on the net sales price minus the value added in the country. However, IN SRF 243/2002 included in the calculation (1st) the percentage of imported goods in the total cost of the goods manufactured; (2nd) the participation of imported goods in the sales price of the goods manufactured as determining factors for the profit margin and benchmark; and (3rd) excluding the added value in the country from the profit margin of 60%, previously calculated on the net sales price minus the added value in the country.

Considering that IN SRF 243/2002 substantially changed the PRL 60 calculation criteria provided for in Law 9959/2000 and led to higher Transfer Pricing adjustments in most cases, taxpayers began discussing the matter in administrative and judicial courts so as to dismiss the application of the PRL 60 method as provided for in IN SRF 243/2022 under the argument that IN SRF 243/2002 created a PRL 60 calculation formula without any legal basis.

The Administrative Court of Tax Appeals set out in precedent 115 that the calculation method for the PRL 60 provided for in IN SRF 243/2002 did not violate the provisions of Law 9959/2000. With the consolidation of the Court of Tax Appeal's unfavourable understanding, taxpayers started appealing to the judicial courts to cancel tax assessment notices drawn up on the grounds of the PRL 60 method as provided for in IN SRF 243/2002.

After more than 20 years, the dispute arrived at the Superior Court of Justice, which ruled out the calculation of the PRL 60 method as provided for in IN SRF 243/2002 on the grounds that it violates Law 9959/2000. In the view of the Superior Court of Justice 1st panel, taxpayers should have observed the calculation provided for in Normative Instruction 32/2001 (which faithfully regulated the provisions of Law 9959/2000).

It is important to bear in mind that the 1st panel of the Superior Court of Justice issued this decision and that the 2nd panel has still to issue a ruling on the matter. Nevertheless, this decision brings a very much-needed breath of fresh air in the years-long dispute between taxpayers and tax authorities.

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