Tag: RPL 60 / PRL 60

PRL 60 or RPL 60 (Resale Price Less 60%) was a Brazilian transfer pricing method that was used for pricing of imported goods prior to 2012. Application of this rule is the primary issue in the majority of Brazilian transfer pricing case law.

Brazilian Article 18, II of Law 9430/1996, as amended by Law 9. 959/2000, provides that the transfer price, in the case of goods and rights imported for application in the productive process, calculated by the resale price less profit method – PRL – 60, is the arithmetic average of the resale prices of goods or rights, calculated by excluding unconditional discounts, taxes, commissions brokerage and profit margin of 60%, the latter calculated on the resale price after deducting the mentioned production costs and also the added value calculated from the proportional participation of each imported good, service or right in the formation of the final price, as provided by law and detailed in the normative instruction

§ 1.482-4(c)(4) Example 3.

(i) FP, is a foreign company that designs, manufactures and sells industrial equipment. FP has developed proprietary components that are incorporated in its products. These components are important in the operation of FP’s equipment and some of them have distinctive features, but other companies produce similar components and none of these components by itself accounts for a substantial part of the value of FP’s products. (ii) FP licenses its U.S. subsidiary, USSub, exclusive North American rights to use the patented technology for producing component X, a heat exchanger used for cooling operating mechanisms in industrial equipment. Component X incorporates proven technology that makes it somewhat more efficient than the heat exchangers commonly used in industrial equipment. FP also agrees to provide technical support to help adapt component X to USSub’s products and to assist with initial production. Under the terms of the license agreement USSub pays FP a royalty equal to 3 percent of sales of USSub equipment incorporating component ... Read more

§ 1.482-4(c)(4) Example 1.

(i) USpharm, a U.S. pharmaceutical company, develops a new drug Z that is a safe and effective treatment for the disease zeezee. USpharm has obtained patents covering drug Z in the United States and in various foreign countries. USpharm has also obtained the regulatory authorizations necessary to market drug Z in the United States and in foreign countries. (ii) USpharm licenses its subsidiary in country X, Xpharm, to produce and sell drug Z in country X. At the same time, it licenses an unrelated company, Ydrug, to produce and sell drug Z in country Y, a neighboring country. Prior to licensing the drug, USpharm had obtained patent protection and regulatory approvals in both countries and both countries provide similar protection for intellectual property rights. Country X and country Y are similar countries in terms of population, per capita income and the incidence of disease zeezee. Consequently, drug Z is expected to sell in similar quantities and at similar prices in ... Read more
Brazil vs DSM Produtos Nutricionais Brasil S.A., October 2021, Federal Regional Court, Case No. 5013244-89.2018.4.03.6100

Brazil vs DSM Produtos Nutricionais Brasil S.A., October 2021, Federal Regional Court, Case No. 5013244-89.2018.4.03.6100

DSM Produtos Nutricionais Brasil S.A. had based the intragroup pricing of imported goods on the “RPL-60 method” which applied in Brazil up until 2012. “Article 18, II of Law 9430/1996, as amended by Law 9. 959/2000, provides that the transfer price, in the case of goods and rights imported for application in the productive process, calculated by the resale price minus method – PRL-60 method -, is the arithmetic average of the resale prices of goods or rights, calculated by excluding unconditional discounts, taxes, commissions brokerage and profit margin of 60%, the latter calculated on the resale price after deducting the mentioned production costs and also the added value calculated from the proportional participation of each imported good, service or right in the formation of the final price, as provided by law and detailed in the normative instruction” However, according to the Tax authorities the calculations had not been in accordance with the instructions given in the legislation. On that ... Read more
Brazil vs Syngenta Protecao de Cultivos LTDA, September 2016, CARF Case No 16561.000199/2008­16

Brazil vs Syngenta Protecao de Cultivos LTDA, September 2016, CARF Case No 16561.000199/2008­16

Syngenta had been issued a tax assessment related to two tax violations: (1) incorrect ascertainment of the PRL 60, in disagreement with IN SRF no. 243, of 2002, in the ascertainment of transfer prices, and (2) omission of revenues arising from inventory differences. Syngenta filed an opposition claiming (1) illegality of IN SRF 243, of 2002; (2) undue inclusion of freight, insurance and taxes in the price charged. (3) inadequacy of the revenue omission and (4) inapplicability of default interest on ex-officio fine. In the lower court, the opposition was partially granted, in order to partially exempt the assessments related to the omission of revenues arising from inventory differences. Due to the exonerated tax credit, the President of the Panel then filed an ex-officio appeal. A voluntary appeal was filed by Syngenta, returning the matters presented via opposition, which was heard by the second instance (CARF’s Ordinary Panel), which upheld the decision of the DRJ in full, dismissing the ex-officio ... Read more
Brazil vs LG Electronics Do Brasil LTDA., May 2016, Superior Chamber of Tax Appeals, Case No 9101-002.323

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

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. Judgement 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 ... Read more
Brazil vs LG Electronics Do Brasil LTDA., May 2016, Administrative Court of Appeals, Case No 1302-001,162

Brazil vs LG Electronics Do Brasil LTDA., May 2016, Administrative Court of Appeals, Case No 1302-001,162

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 for FY 2006 and 2007 where the tax authorities rejected the pricing method chosen by LG Electronics. An appeal was filed by LG Electronics with the Administrative Court of Appeal. Judgement of the Court The Court set aside the assessment of the tax authorities and ruled mostly in favor of LG Electronics. “It is also important to remember that the transfer pricing rule is not intended to grant tax benefits or stimulate domestic production, because its purpose is only to prevent the transfer of tax bases to other jurisdictions, for the various reasons that lead taxpayers to do so, including to reduce tax burden. The age-old, but never forgotten, teaching of Carlos Maximiliano professed that: ‘The word is a bad vehicle of thought; therefore, although the form is translucent ... Read more