Brazil vs LG Electronics Do Brasil LTDA., May 2016, Superior Chamber of Tax Appeals, Case No 9101-002.323

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Category: Arm's Length Principle, Transfer Pricing Methods | Tag: , , ,
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LG Electronics Do Brasil LTDA imported goods from a related company and used the “resale price minus” method to determine the arm’s length price.

Following an audit, an assessment was issued where the tax authorities rejected the pricing method chosen by LG Electronics.

An appeal was filed by LG Electronics with the Court of Appeals and in a judgment issued in 2013 the assessment of the tax authorities was set aside.

An appeal was then filed by the tax authorities with the Supreme Court.

Judgment of the Supreme Court

The Supreme Court upheld the decision of the Court of Appeal and decided in favor of LG Electronics.

“There is no illegality in IN SRF 243/2002, whose mathematical model is an evolution of previous normative instructions. The methodology takes into account the share of added value in the total cost of the product resold. By adopting the proportion of the imported good in the total cost, and applying the profit margin presumed by legislation to define the resale price, we find a parameter price value compatible with the purpose of the PRL 60 method and of the transfer prices.”

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Related Guidelines

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TPG2022 Chapter II paragraph 2.4There are situations where transactional profit methods are found to be more appropriate than traditional transaction methods. For example, cases where each of the parties makes unique and valuable contributions in relation to the controlled transaction, or where the parties engage in highly integrated activities, may make a transactional profit...
TPG2022 Chapter II paragraph 2.3Traditional transaction methods are regarded as the most direct means of establishing whether conditions in the commercial and financial relations between associated enterprises are arm’s length. This is because any difference in the price of a controlled transaction from the price in a comparable uncontrolled transaction can normally be traced...
TPG2022 Chapter II paragraph 2.2The selection of a transfer pricing method always aims at finding the most appropriate method for a particular case. For this purpose, the selection process should take account of the respective strengths and weaknesses of the OECD recognised methods; the appropriateness of the method considered in view of the nature...
TPG2022 Chapter VI paragraph 6.204It will often be the case that, notwithstanding the use of intangibles by one or both parties to a controlled sale of goods or provision of services, reliable comparables can be identified. Depending on the specific facts, any of the five OECD transfer pricing methods described in Chapter II might...

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