Benchmark Price and Renowned Research Companies: Challenges in Brazil

Brazilian transfer pricing rules were introduced by Law 9430/96 and are regulated by Normative Instruction (IN) 1312/12 issued by the Brazilian Federal Revenue Service.

Article 43 of the referenced Normative Instruction allows taxpayers to determine the benchmark price under the Brazilian Comparable Independent Price – PIC (similar to the Comparable Uncontrolled Price – CUP) method based on reports and publications as well as on research performed by an entity or institution with renowned technical knowledge on the subject.

Although this may seem straightforward, the use of information obtained from such entities can present practical difficulties. This is evidenced by a recent decision issued by the High Chamber of Tax Appeals (CSRF) (decision 9101-003.343, 17/1/18), which is the last level of administrative discussion.

In this case, tax authorities challenged a benchmark price under the PIC method calculated by a company in the chemical sector on the basis of the prices disclosed by ICIS-LOR, an internationally reputable entity in the chemical products market.

In the case under analysis, the tax authorities did not accept the use of such data, based on the argument that ICIS-LOR does not disclose the period analyzed, companies researched, and data obtained as required by article 43 of IN 1312. Due to this, tax authorities used the International Trade Integrated System (SISCOMEX) to find other Brazilian companies that imported the same product and demanded information from them on the prices used in such transactions. Such data, however, were not available to taxpayers when the calculations were made, but were presented in the administrative proceedings.

The CSRF’s decision, which was rendered by the casting vote, agreed with the tax authorities that the prices shown in the ICIS-LOR research could not be used by the taxpayer if such entity does not disclose the information required by IN 1312, and that the use of SISCOMEX was possible in this case because this information was attached to the administrative proceedings.

Although the decision was unfavorable to the taxpayer, the dissenting opinion of one of the judges was that the transfer pricing legislation cannot require the taxpayer to have information that is not available prior to the tax assessment, since SISCOMEX data cannot be accessed by the public.

Therefore, although the legislation allows the use of data gathered by reputable research entities, in practice the information may be disregarded by the tax authorities if – as usually happens – such entities do not disclose all the information required in article 43 of IN 1312.