The influence of the link between importer and foreign suppliers in the declared price of imported goods, not justified by the importer, authorises the 1st method of customs valuation to be abandoned (Transaction Value), and the application of a substitute method for determining the customs value, observing the sequential order established in the AVA/GATT.

SUBJECT: TAX ON INDUSTRIALISED PRODUCTS (IPI)

Determination period: 01/01/2010 to 31/12/2013

IPI ASSESSMENT. AUTONOMY OF ESTABLISHMENTS.

In the case of the IPI, the principle of establishment autonomy prevails. The Tax Assessment Notice issued against the parent establishment cannot reach taxable events performed by the branch establishments.

These proceedings have been seen, reported and discussed.

The members of the panel agree, by unanimous vote, to reject the claimed nullity preliminaries and, on the merits, by majority vote, to partially grant the Voluntary Appeal, in order to cancel the portion of the IPI tax assessment notice related to the branches, The Councilors Mara Cristina Sifuentes (Rapporteur) and Arnaldo Diefenthaeler Dornelles, who dismissed the Voluntary Appeal, and Councilors Pedro Rinaldi de Oliveira Lima and Laércio Cruz Uliana Júnior, who fully granted the appeal, were defeated. Councilor Arnaldo Diefenthaeler Dornelles voted for the conclusions on the topic related to the IPI tax assessment notice of the branches. Councilor Leonardo Vinicius Toledo de Andrade was appointed to draft the concurring vote. Councilor Laércio Cruz Uliana Júnior stated his intention of presenting an explanation of vote.

(document digitally signed)

Hélcio Lafetá Reis - Chairman

(document digitally signed)

Mara Cristina Sifuentes - Rapporteur

(document digitally signed)

Leonardo Vinicius Toledo de Andrade - Assigned editor

The following Councilors participated in this judgment: Hélcio Lafetá Reis, Leonardo Vinicius Toledo de Andrade, Pedro Rinaldi de Oliveira Lima, Mara Cristina Sifuentes, Laércio Cruz Uliana Junior, Márcio Robson Costa, Arnaldo Diefenthaeler Dornelles and Paulo Régis Venter (alternate member).

Report

This is a Tax Assessment Notice demanding Import Tax, Tax on Manufactured Products, contributions to the PIS-Import and Cofins-Import, legal increases and a fine for inaccurate statement provided for in item III, article 711 of the Customs Regulations.

From the tax report, it is concluded that the customs valuation of the imported goods in the period from 2010 to 2013 was performed, as the company was assessed for having practiced prices influenced by the existing linkage between it and its foreign suppliers in a large part of its import transactions, which, pursuant to paragraph 1(d), Article 1, of the Customs Valuation Agreement - AVA/GATT, made the use of the 1st customs valuation method impracticable, and the customs value of the imports was determined by using the 6th valuation method, after the impossibility of using the previous substitute methods was demonstrated.

The inspection presents in the tax report information about the company and its operations, besides explaining the methodology used in the work of ascertaining the customs value according to the AVA-GATT. It also presented the history of the tax procedure, with details of the information requested from the company and the answers provided.

Informs in the Tax Report that in the period under inspection, from 2010 to 2013, the importer recorded, 8,503 import declarations - DIs, whose total declared value was US$ 236,290,805.55. Of these, 2,236 operations (26%) in the amount of US$ 101,149,640.84 (43%) refer to goods acquired from exporters belonging to the GKN group itself. These data correspond to imports registered by the head office and subsidiaries 2 and 7 of the company, although the head office has been responsible for registering operations totalling US$ 100,137,347.15.

Only those DI's whose goods were exported by companies with the expression GKN in their name are being considered in this inspection, as shown in spreadsheet I (pages 3260 to 4063).

In these imports, the taxpayer informed, in the specific field related to the customs valuation, that it used the First Valuation Method, supported by the statement that the existing bond with the foreign exporters would not have influenced the prices practiced, as shown in the information contained in SHEET I (pages 3260 to 4063).

The taxpayer used several tax regimes in its imports: Full Payment, Suspension Drawback, Exemption Drawback, Reduction by the Automotive Regime, and Mercosur Tariff Preference. Although some operations have been registered in the name of branches 2 and 7 of the company, for the purposes of this tax procedure, we have grouped all the imports in the parent establishment, which is the one that effectively maintains the controls over the registered operations, especially with regard to the calculation of the parameter prices for the purposes of the legislation on Transfer Pricing.

The inspection began after findings made in the Import Declarations and Tax Files submitted by the taxpayer suggested that the prices declared in the customs clearances could have been influenced by the link between the importer and the foreign exporters.

In response to the summons, the taxpayer informed that it elected the CPL method (production cost plus profit), whereby the computed production cost comprises the cost of raw materials, variable costs composed of variable labor and variable inputs, and fixed costs, composed of fixed labor, depreciation of assets, and other fixed inputs. It also presented a spreadsheet containing the percentage composition of each portion of the cost.

Moreover, the taxpayer informed that the company does not purchase identical or similar products from non-tied suppliers; that the tied suppliers do not export the same products to non-tied importers; that for the Driveline Division, the definition of prices is based on a globally defined transfer price catalogue and that, for the Walterscheid Division, there is no specific rule, due to the diversity of products so that prices are defined commercially between the companies involved.

It is clear from the responses that, at least for the Driveline Division, which accounts for over 90% of the total value imported, the prices charged are not the result of commercial negotiations.

The company was summoned to submit articles of association, licensing and technical assistance agreements. After analysis, the company was informed of the impossibility of using the transaction value for customs valuation due to the fact that the link between the companies had influenced the prices practiced. After several summonses, several exchanges of information and clarifications were made in order to arrive at the price of the goods.

With the documentation obtained with the company, the inspection begins the customs valuation procedure, providing clarifications on the AVA-GATT and that it was not possible to use the 1st valuation method because there was a link between the companies that influenced the price of the goods. It presents a report demonstrating how the link between the companies was verified and the influence on prices. Goes through all the methods of valuation until concluding by the application of the 6th method. Discusses the transfer price, the applicable legislation and the obligation to present in the DIPJ the comparison between the weighted average prices practiced in its operations with the parameter prices, for the determination of the IRPJ and CSLL.

The company was regularly informed and presented an impugnation that was judged by DRJ Fortaleza, decision 08-037824, of 15/02/2017:

The members of the 2nd Judging Panel agree, in the form of the report and vote integrating the present judgment, by:

I - PRELIMINARY, by majority vote, (a) to acknowledge the content of the objection;

b) Deny the request for due diligence;

c) REJECT the nullity preliminaries due to the customs valuation object, as the assessment was made in the name of the parent company, instead of the branch establishment that registered the DI.

Judge Ricardo Serra Rocha followed the conclusion of rejecting the nullity preliminary objection due to the assessment having been made in the name of the head office, instead of the branch establishment that registered the DI, according to the Statement of Vote.

Article 15.2(b) defines similar goods as those which, although not alike in all respects, have similar characteristics and material composition, enabling them to fulfil the same functions and be commercially interchangeable. Factors to be considered in determining whether goods are similar include good quality, commercial reputation and the existence of a trademark;

Also in relation to similar goods, the Interpretative Note to Article 3 establishes the condition that the transaction value of these goods has been accepted on the basis of Article 1 of the AVA-GATT. That is, the transactions to be considered as paradigms for valuation must meet the conditions for application of the 1st valuation method (Article 1 of the AVA-GATT).

The valid condition for both identical and similar goods is that the transaction values of these goods have been accepted on the basis of Article 1, that is, they would have to have been previously analyzed in order to verify their adequacy to the AVA-GATT. The simple registration of a DI by any importer does not mean that the declared prices meet all the conditions established in the AVA-GATT for the use of the First Valuation Method.

Article 15.2(d) further provides that only goods produced in the same country as the goods being valued may be considered identical or similar.

The importer, in the course of the inspection, stated that its exporters did not sell identical or similar products to unrelated Brazilian importers. He also affirmed that he never imported identical or similar products from non-tied suppliers. In other words, according to the answers presented by the audited company, the application of the 2ndand 3rd methods could not be based on internal transactions of the economic group.

Below are fragments of the Audit Report on this subject (pages 4632 to 4634):

...

The preferential condition of using identical or similar products produced by the same producers is ruled out and, in this case, goods produced by a different person could be used, as established by letter (e) of paragraph 2 of Article 15 of the AVA-GATT.

...

In order to ascertain the existence or not of imports by third parties, the importer clarified that, even if there are products manufactured by competitors that can fulfill the same functions, it is not possible to consider them identical or similar, due to the own technology applied in their products, as shown in the fragment below:

...

The answers submitted by the applicant during the inspection are consistent with the nature of the products it imports. These are automotive parts manufactured according to its own technology, which would hardly meet the comparability criteria with products of other manufacturers. The absence of sales by its suppliers to unrelated purchasers and the absence of purchases made from unrelated suppliers rule out the possibility of using the second and third methods from internal transactions.

Still, strangely the importer presents, in administrative appeal, examples of imported products obtained from statistical bases of foreign trade made available by the Federal Revenue and that, according to him, would be enough to attest that the linkage would not have influenced the prices, justifying the use of the First Method.

Initially, it should be clarified that the impossibility of applying the First Method was not based on the existence or not of identical or similar goods that have been imported at lower prices, but on the information provided by the importer itself, which indicated that the declared prices were lower than the production costs of such products. The importer failed to demonstrate, by providing figures and criteria, that the tying had not influenced the prices, in the terms established in paragraph 2 (b), of Article 1, of the AVA.

In order to analyze the examples presented by the appellant, it is important to consider, first of all, that they refer to information obtained directly from Siscomex, without any previous analysis or treatment. In other words, they are information declared in customs clearances by several importers. It is known that more than 95% of the customs dispatches are directed to the green channel, which means that they did not undergo any analysis. A small part of the dispatches is that are directed to the yellow, red or grey channels, being, therefore, object of some level of customs conference during the clearance, but even so, they would hardly have been object of analysis regarding their adequacy to the AVA-GATT rules.

Therefore, considering the restrictions imposed by the AVA-GATT, it is not possible to conclude that the constant prices there could meet the conditions for the application of substitute methods.

Even so, by analysing the content of the information stated in the examples used by the applicant, it is possible to draw some important conclusions. The descriptions contained therein are distinct from the descriptions of the imported goods. They are not identical goods, therefore, and it is impossible to conclude that such goods would be similar. The first example concerns goods originating in Japan.

...

Although they refer to products described as TRIPLE, which are also included in the imports of the appellant, there is no way to attest to any degree of similarity between them, not even if they serve the same purpose, since these are automotive products manufactured for certain models of vehicles. In addition to the fact that the descriptions do not coincide, the appellant did not promote any import of this type of product whose country of origin is Japan, which would immediately exclude these operations from any consideration.

From the same country of origin, the applicant also submitted as an example of the like product an operation with the product SEMI AXIS HOMOCINETIC.

...

Here again, it is clear that it is not possible to certify that they are similar products simply by their descriptions. Moreover, there is also no importation by the appellant of SEMI AXLES originating from Japan.

In other words, the presentation of these examples, contradicting the very information provided by the assessed company during the inspection, does not serve to prove the existence of identical or similar products; on the contrary, they only confirm that the information provided during the inspection was correct.

In relation to the example of products originating in the USA, the importer submitted a transaction concerning STEEL BARS.

...

The description of the products does not allow the conclusion that they are similar goods. The appellant imported steel bars from the USA, but such imports occurred only in 2010. That is, in addition to the lack of descriptive similarity in the products, the example of a transaction recorded in 2013 does not meet the requirement of temporal proximity required in the AVA-GATT.

The third example is PLASTIC RINGS from Romania.

...

There is no doubt that the generic character of the description of this type of product does not allow any conclusion on similarity, except if reference codes, brands or models coincide. Moreover, also in relation to this product, there is no operation registered by the applicant, which has Romania as country of origin.

In relation to the examples presented, therefore, any analysis related to other acceptability requirements, such as similar quantities, temporal proximity and compliance with the conditions of application of the 1st valuation method, is waived, since such products do not meet the preliminary requirements of similarity or identity. Well, if from the public data, the appellant was only able to raise these examples, it is because, in fact, there are no imports of imported products that could meet the conditions of identity and similarity established in the AVA-GATT, confirming the information provided by the appellant itself during the inspection.

In addition, it is very clear that the information contained in the statistical database of foreign trade, published in the electronic address of the RFB cannot be used for the application of the 2nd or 3rd valuation methods. Several conditions established in the AVA-GATT are unknown, such as, for example, the quantity, the trade level, the relationship between the importer and its supplier, the compliance with the other conditions for the application of the 1st method, the similarity in terms of description of products, the coincidence between the countries of origin, among others.

Even so, with the sole purpose of definitively dispelling doubts, we have re-searched the RFB databases to demonstrate the absence of transactions that could meet the conditions for application of the 2ndand 3rd methods.

The first step refers to the verification of the existence of fiscal procedures of customs valuation that have attested the compliance with the conditions of application of the 1st valuation method of identical and similar goods whose imports had occurred in the fiscalised period, and no fiscal procedure was found regarding imports made in the same period, which complied with these conditions.

Making this requirement more flexible and starting from the premise that imports which have been submitted to some level of analysis during customs clearance, i.e. those which have been directed to the Yellow, Red or Grey channels, could have had their declared customs values examined during customs clearance, we have carried out various data extractions which we will now describe.

The first survey refers to all imports directed to Yellow, Red or Grey channels, which have companies of the GKN Group as manufacturers and companies other than GKN as importers. SHEET VII (pages 5690 to 5709) shows all imports made.

From this survey, no matches were found between the descriptions of the products imported by the applicant and the products imported by third companies.

The importer recorded only three transactions with this same NCM, all in 2010, in whose description there was the word PACKAGING. However, there is no descriptive similarity between the products, as shown in the table below.

SHEET VIII (pages 5710 to 5759) contains the column "QUANTITY OF DI WITH SIMILAR TEXTS" indicating the quantity of third-party operations in which there are coincidences of NCM, country of origin, key words, and which are not related companies. In the column "OBSERVATION" there is the reason why such operations cannot be considered as paradigms for valuation.

In analyzing the compared transactions, we initially identified the coincidences of tax classification and country of origin, and then compared the descriptions of the imported products. When there were coincidences of key words, we analyzed in more detail the descriptions of the products to identify the degree of similarity in descriptive terms and we did not find any operation that could be used as import of identical or similar products to those imported by the appellant.

From this examination, it is concluded again that there is no way to use the information registered in SISCOMEX Import to obtain paradigm operations for valuation by the second or third methods, not only because it lacks a previous analysis that allows the conclusion of the adequacy of those declared values to the rules of the First Valuation Method, but also because there are not, in the analyzed period, operations that present the minimum conditions to serve as reference, such as descriptive coincidence or similarity, coincidence of countries of origin and to be operations performed between independent companies.

Second Quest As a second question, the noble advisor of the CARF requests our opinion on the appellant's claims that there were still errors and inconsistencies in the calculations of the spreadsheets. Therefore, we will analyze each of the topics in Chapter 6 - CALCULATIONS of the Appeal that are related to calculation errors (pages 5550 to 5563).

a) The first issue pointed out has already been fully clarified in the Due Diligence carried out in the occasion of the judgement of the impugnation.

The Tax Information, on folio 5,042, makes it clear that the revaluation occurred only for the products in which the production cost plus the profit margin was higher than the declared value at import, meeting the provisions of item 3, of paragraph 2 of the Note to Article 1, of the AVA-GATT, which determines that "the impediment to apply the First Valuation Method would only NOT apply to those situations in which the prices practiced are sufficient to cover the costs and ensure a profit representative of the overall profit". In other words, when the price declared at importation is higher than the cost plus profit, the First Method was preserved and the declared value was maintained.

Items (2), (3), (4), (5) and (6) do not refer to alleged calculation errors, but only to the appellant's opposition to the methodology adopted by the inspection.

In item number (7), the applicant complains that the customs value would have been established by DI.

It is important to emphasize that the customs value was calculated for each addition of the DI and not by the value of the DI. It is in the addition that the calculation basis is established, since a DI with more than one addition could have different rates for different goods. Therefore, the appellant's claim that the customs value was calculated per DI is unfounded.

The calculation methodology described in the Audit Report (pages 4,649 to 4,651) and reinforced in the Tax Information (pages 5,041 to 5,046) makes it clear that the reconstitution of the tax calculation basis was made preserving the declared values for the non-valued items and the situations in which the cost plus the profit margin was lower than the declared value. The customs value of each addition was reconstituted to serve as a basis for calculating the taxes due. From this calculation, the taxes paid in each addition were deducted. Therefore, the recalculated customs value of an addition is equal to the reconstituted value, when the declared value is lower than the cost plus profit, plus the preserved values (not revalued products). The taxes collected will be the taxes calculated on this customs value deducted from the taxes already paid in each addition.

To calculate the amount that served as a basis for applying the 1% administrative fine, however, the methodology was different, as shown in items 17 and 18 of the descriptive memorial contained in the Audit Report (pages 4,651), which we copy below:

Thus, the calculation basis for the fine was restricted to the revalued products. In defining the amount to be charged, however, it was necessary to consider the provisions of

§§The Customs Regulation establishes that the fine cannot be less than R$ 500.00, nor higher than 10% of the total value of the goods (pages 4,654), so that, only for this purpose, to establish the upper limit for the collection of this fine, the total customs value of the Import Declaration was considered.

In chapter 6.1 of the appeal, the appellant presents several topics that would be, according to the appellant, errors remaining after the provision of information resulting from the Due Diligence carried out during the first instance trial.

Topic 1 In the first topic the appellant resumes matters already settled in the first instance judgment.

...

This allegation should not prosper, since the only situation in which the total demonstration of the calculation is not expressed is in addition 001 of this DI, in the whole of PLAN VI (pages 4867 to 5039).

The lack of this calculation does not harm the taxpayer's defense at all, since all other additions of the same DI and of all other DIs make it evident that the value of the calculation basis of the addition will be the sum of the amounts stated in column C+L, converted to national currency by the exchange rate, and added to the values of freight and insurance. Thus, there is no way not to conclude that the Customs Value of this addition should be R$ 32,568.85, which corresponds to (US$ 6,247.17 + US$ 3,214.98 + US$ 2,997.79 + US$ 1,244.11 + US$ 3,081.25) * 1.82188 + (R$ 1,931.00 + R$ 57.00). The total value is

in the Notices of Infraction on pages 64, 602 and 603. Topic 7

In the seventh topic, the appellant claims that there was apportionment of freight and insurance in additions that mix revalued and non-revalued items, saying that such apportionment would be in disagreement with what the inspectorate stated in response to the third question in the diligence done in the trial stage of the first instance.

...

By the claim, the Appellant demonstrates not to have understood the explanation presented in the third question contained in the Tax Information referring to the diligence performed during the trial of first instance. There we were referring to imports made under the condition CFR or CPT. In these situations, the inclusion of freight for the reconstitution of the customs value, in the hypothesis of products that would not be revalued could give rise to an undue difference between the recalculated value and the value of the Calculation Basis of the DI.

This situation would never occur in imports made under the incoterms FOB, FCA, FAS and EXW, because under these conditions, the unit price declared includes neither the value of freight nor the value of insurance. In this case, the freight and insurance of the import need to be appropriate to all products of the DI.

Our calculation methodology followed the following criteria:

• The values of freight and insurance appropriate to the additions in each of the DIs, when the addition has revalued products and products not subject to revaluation, need to be prorated in proportion to the value of each of the items of the addition.

• For revalued items, the cost value was increased by the profit margin and multiplied by the imported quantity, generating an adjusted price. This price is converted into local currency and increased by the freight and insurance portion corresponding to this product in the addition.

• For non-revalued items the cost plus profit margin was not used. The adjusted price is the declared unit price multiplied by the quantity. In the spreadsheet it can be seen that the value in the column PR.

ADJUSTED is equal to the value of the column VAL. COLUMN. This value was converted to the national currency. When the Incoterm does not include the freight, this value must be added to the freight and insurance corresponding to the product, resulting in a value equal or very close to the calculation base of the addition. If the Incoterm already includes the freight, only the insurance value will be added to the value.

The example presented by the appellant already proves the methodology used. DI 10/076029-3 refers to a negotiation executed at the FCA Incoterm, therefore, the unit price does not include freight and insurance. One notices that by including freight and insurance in the non-revalued items of additions 003 and 005, the resulting value was very close to the value corresponding to the calculation basis of the addition.

Similarly, DI 10/0769817-0, cited as another example of the alleged problem, is registered with the Incoterm EXW, whose unit prices do not include freight and insurance. The same reasoning applies to this DI.

The text of the Tax Information, quoted and transcribed by the Appellant, only applies to situations in which the Incoterm was CFR or CPT and the product was NOT REVALUED. As a matter of fact, the first paragraph of the explanation contained in that information clearly states the importance of considering the Incoterm in the calculation methodology (pages 5,047). It is strange that the appellant has not maintained the identification of the Incoterms in the examples cited in the appeal and has transcribed only the third paragraph of the explanation.

...

Topic 8

Although identified by the numeral (7), the next topic is number eight and refers to the allegation of currency misuse for cost conversion.

...

Initially, we reproduce below a fragment of the Audit Report (pages 4595) where it is clear that the taxpayer calculated its prices parameters from the average unit cost of production in local currency of the imported goods.

...

Also on the exchange rate, in the Inspection Report (pages 4599) there is information that the importer himself states that he used the same exchange rate to convert both the import price and the cost of production to the local currency.

...

In other words, the importer states that the currency used in the import was also used to calculate the price parameter, even because it used the CPL method, which starts from the cost of products of the imported products. Regardless of this information, the objective of the inspection was to compare the cost of production plus the profit margin with the value declared in the DI. Therefore, it was necessary to convert the price parameter, presented in national currency, to the foreign currency used in the DI. It is not a mere liberality the choice of currency, as the appellant affirms. The currency is determined by the commercial negotiation and declared by the importer itself in its DIs.

In the example provided to demonstrate the effects of its claim, the applicant simply changes the trading currency of the DI.

...

Import declaration 10/2011421-7, quoted above, refers to a trade carried out in Euros. The local currency of the imported goods is the Euro. Why, would the costs be in US dollars? In the statement submitted by the importer for transfer pricing purposes, the import values were converted to the national currency by the exchange rate of the import currency. The costs that served to compose the parameter price were obtained from the exporters of the products themselves. Therefore, it is much more reasonable that the currency is the same. Furthermore, regardless of which is the original currency of the value that served as reference for

Again, it is not clear what led the inspectorate to conclude that there was no "descriptive coincidence". What were the terms searched? Was this research done for 100% of the assessed items or by sampling? It is possible to understand that more specific descriptions have not returned results, however, this presumption does not apply to items whose description is more common, such as those previously mentioned (e.g. "seal ring"). When dealing with the "second extraction", the inspection indicates that these are imports registered by third parties, from other suppliers. In addition, it cites some specific examples for which it claims to have searched "reference words".

From there, he cites the following one-off situations:

i. for NCM 8708.99.90, with the same description term as "TULIPA", identified other imports but claimed it was a "generic description", without, however, detailing the reason for this conclusion.

ii. for imports of NCM 8483.40.90 goods, one import presented descriptive similarity but disregarded it because there was a two-year difference between the assessed import and the compared operation. Regarding this affirmation, the AVA brings the term "in approximate time "2, so that it is not up to the inspection to conclude for the disqualification without a deeper analysis.

iii. for NCM 8483.90.00 - with the term "Crosshead", the Inspection confirmed that it found occurrences, however, it understood it to be a "generic description" and also disregarded these comparisons.

• SHEET IX - Identification of similar goods.

On presenting Spreadsheet IX, the inspection shows all the queries made with the respective key words for checking descriptive coincidences.

Despite these spreadsheets indicating the existence of at least similar goods, it used only one example (EMBREAGEM) to justify that there would be no descriptive similarity between the identified products and the products assessed, which are 37 attachments to the spreadsheet. In other words, of 37 terms consulted (with 720 pages in all) the inspection presents only one for which it claims there is no descriptive similarity and applies this conclusion to all.

There is, therefore, for these goods, at least similarity, demonstrating that the assessment is not sustained, contrary to what is affirmed by the Tax Authority, there are elements to ensure that the Sixth Method could not be applied, because for many goods there is identity or similarity capable of enabling the application of the Second or Third Methods.

Therefore, the assessment would be completely valid if no identical or similar goods had been identified to counter evidence presented by the Taxpayer-Appellant.

• Of the requirement of assumptions not provided for in the AVA to grant identity or similarity of goods Throughout the inspection process, tax and accounting documents and sufficient clarifications were presented to demonstrate that, in fact, the customs value applied to the imports made in the assessed period was adequate and correct to the transactions or, further, that if the First Method was not applicable, the Second or Third Method should have been applied, but in no event the Sixth Method. Even less that the arbitration applied was the one used for the calculation of the Transfer Price.

The Taxpayer-Appellant presented evidence of the existence of identical and similar goods, as demonstrated in the previous item, the same way the diligence also found several goods for the same purpose: to rule out the application of the Sixth Method due to the possibility of applying the Second or Third Methods.

In other words, in order to rule out the identity or similarity of the goods, the Tax Authority is demanding the fulfillment of unreasonable assumptions, not provided for in the AVA, as a way to disqualify the possibility of applying the most favourable Customs Valuation Method and consequently the nullity, even if partial, of the Tax Assessment Notice, for not complying with the mandatory order of the customs valuation methods.

The AVA, art. 15, requires as assumptions to configure the identity or similarity:

2. (a) - In this Agreement 'identical goods' means goods which are alike in all respects, including physical characteristics, quality and commercial reputation. Minor differences in appearance shall not prevent goods which otherwise meet the definition from being considered identical;

(b) - in this agreement, similar goods are those which, although not alike in all respects, have similar characteristics and material composition, enabling them to fulfil the same functions and be commercially interchangeable. Among the factors to be considered for

determining whether goods are similar include good quality, commercial reputation and the existence of a trademark;

(c) - the terms identical and similar goods do not cover those goods which incorporate or comprise, as the case may be, elements of engineering, development, art and design work and plans and sketches for which no adjustments have been made under the provisions of paragraph 1(b)(iv) of Article 8 because such elements have been carried out in the importing country;

(d) - only goods produced in the same country as the goods being valued may be considered identical or similar;

(e) - account shall be taken of goods produced by a different person only when there are no identical or similar goods, as the case may be, produced by the same person who produced the goods being valued.

However, instead of applying the AVA, the Tax Authority carries out the diligence again based on the claim of the Taxpayer-Appellant that there are no identical or similar goods, requiring assumptions not provided for in the AVA or treating the requirements as cumulative, without there being any normative provision for such.

Now, with regard to the description of the goods, it is reiterated that it is necessary to consider a complete glossary for each good as a way to conclude that there are no identical or similar goods, since it did not accept the indication of the NCM presented by the Taxpayer-Applicant, but it was verified, for some goods, the existence of identical or similar in the Federal Revenue of Brazil's database.

There is no requirement of NCM and identical description of the goods, there is the interpretative common sense, with reasonable and objective criteria to measure if the goods can be considered identical or similar, an exercise that was not applied by the Tax Authority in its Diligence, solely and exclusively to maintain the assessment.

• Conclusion as to non-compliance with the order provided for in the AVA and consequent nullity of the AIIM3

According to article 142 of the National Tax Code, it is up to the inspection to attach to the records elements of proof that demonstrate the occurrence of the infraction (underpayment by mistaken customs value), but what is verified is that the evidence produced indicates the incorrectness of the assessment, since it is based on the Sixth Method, disregarding the mandatory order, in view of the possibility of applying the Second and Third Methods, which renders the assessment null and void due to material defect.

Although claiming to have done so, the Tax Authorities have not exhausted each of the methods to start with the 6th Method, that is, the last resort or the method based on the criterion of reasonableness (Article 7 of the AVA), since if they had done so, they would have already ascertained that the First Method (transaction value) is the one that applies to the case, since, as demonstrated, the Tax Authorities should have observed their own statistical data to compare the prices related to import transactions as determined in Ordinance SRF 306/07.

As already stated, the documents presented by the Appellant-Taxpayer, as well as those presented by the Tax Authorities in the due diligence, demonstrate that there are identical and similar goods sufficient to invalidate the assessment for having failed to comply with the mandatory order imposed by the AVA.

Contrary to the Tax Authority's position, it was demonstrated that there is the possibility of applying another method, while it did not comply with the obligation to demonstrate that the only applicable method was the Sixth one, it is its strict obligation to prove the occurrence of the taxable event and the existence of credit to be recorded for the issuance of the tax assessment notice due to the application of the incorrect customs valuation method.

The acts of assessment and application of penalties for noncompliance with tax obligations (in casu application of the appropriate customs valuation method) or instrumental duties are incumbent upon the Public Power. It is a duty, as verified by the teachings of José Souto Maior Borges:

"The Tax Authorities, however, have the duty - not the burden - of verifying the occurrence of the legal tax situation as it unfolds in the factual world, regardless of the so-called pre-constituted evidence or presumptions of any kind (...) If the administrative tax proceeding is, in principle, unavailable, the insertion of the legal category in which the burden consists does not fit therein". Now, the taxpayer that provides the documents referring to the object initially inspected (Transfer Pricing) and subsequently receives an assessment on customs valuation, knowingly due to the impossibility of assessing the IRPJ and CSL, presents evidence that the chosen customs valuation method, as well as that of transfer pricing is correct, further demonstrates that the Tax Authority could have applied the Second or Third Method, later ratified by the information obtained by the Federal Revenue Service itself in the performance of the diligence, has the information contained therein proving in its favor.

However, in view of the evidence supporting the claim of observance of the Customs Valuation Agreement for taxation of imports made in the inspected period, the Tax Authority insists on the application of the Sixth Method, did not produce any confronting evidence, apt to demonstrate, categorically and mathematically, that the there are no goods for comparison and the values applied by the other importing companies, demonstrating that the value used by GKN is lower or inadequate for the analyzed import operations of the period.

Therefore, in the case records there is a sufficient evidentiary set to demonstrate its irretrievable conduct to validate the imports made, even if without complementation of taxes as claimed by the Tax Authority, as verified by the critical analysis of Fabiana Del Padre Tomé5 as to the formation of evidence:

From this we can conclude that all evidence is a fact that makes us presume the occurrence of an event. All evidence appears as an indication, capable of leading to a presumption. This is because, absolute truth being something intangible, since one never has access to the event itself, the proof attached to the case records is nothing more than an indication, from which a logical operation is performed, leading to the conclusion about the occurrence or non-occurrence of a certain legal fact in the strict sense.

Due to all the foregoing, it is clear that the inspection failed to demonstrate that the Taxpayer-Appellant used lower amounts in the customs valuation for the payment of the taxes, mainly due to the existence of identical and similar goods, which rule out the application of the sixth method, and therefore the tax assessment notice is null and void, and the credit assessed is to be cancelled.

2. 2. THE ISSUE "(II) CALCULATION ERRORS" In fact, the Appellant-Contributor pointed out mistakes in the calculation that could be confronted by the Tax Authority, by redoing the spreadsheets leading to the conclusion that the amount required in the AIIM is correct.

However, the Tax Authority, exercising the diligence required by the CARF, instead of presenting new, more detailed calculations to explain why it believes that the tax requirement is correct, limited itself to criticizing the Taxpayer-Appellant, making the diligence unsuccessful.

A clear example of this is the Tax Auditor's response to the 6th claim brought by the Appellant-Contributor in its voluntary appeal, demonstrating that there were formula errors in the calculation spreadsheet of the AIIM, so that there is no way to specify the amounts involved by the Appellee for the calculation of this DI:

This allegation should not prosper, since the only situation in which the total demonstration of the calculation is not expressed is in the addition 001 of this DI, in the whole SHEET VI (pages 4867 to 5039). The lack of this calculation does not harm the taxpayer's defense at all, since all other additions of the same DI and of all other DIs make it evident that the value of the calculation basis of the addition will be the sum of the amounts contained in column C+L, converted to national currency by the exchange rate, and added to the values of freight and insurance. Thus, there is no way to conclude that the Customs Value of this addition should be R$ 32,568.85, which corresponds to (US$ 6,247.17 + US$ 3,214.98

+ US$ 2,997.79 + US$ 1,244.11 + US$ 3,081.25) * 1.82188 + (R$ 1,931.00 + R$

57,00). The total amount is set out in the Infraction Notices on pages 64, 602 and 603.

Another example occurs in topic 7, in which the Tax Auditor focuses his response based on the claim that "the appellant demonstrates not to have understood the explanation presented in the third question contained in the Tax Information related to the diligence performed during the trial of the first instance".

It should be reiterated: the legal rule of article 142 of the CTN determines that it is the duty of the inspection, as per article 142 of the CTN, to exhaustively prove the facts that support the assessment, as well as all the criteria related to the legal-tax relation in all its details. If any of these elements is missing, the assessment cannot be accepted.

Not only that, the Tax Auditor did not oppose to the exclusion of the transactions from Uruguay in the years 2010 and 2011 from the tax assessment notice, which would amount to R$ 2,066,921.23 (principal amount) and R$ 399,656.66 (regulatory customs fine), pursuant to the report issued by PWC that attested that the amounts practiced in such transactions were within the market parameters - item 6.2. of the Voluntary Appeal.

IV - the winning bidder of seized or abandoned products put up for auction.

Sole paragraph. For the purposes of this tax, an autonomous taxpayer is considered to be any establishment of an importer, industrialist, trader or bidder.

Consultation Solution No. 27 -Cosit, of 25/11/2013

34. Finally, the CTN, in 1966, gives priority to the taxpayer's election of its "tax domicile. As a rule, the taxpayer may choose its tax domicile from among the possible domiciles defined by civil law, subject to tax refusal when the choice makes collection or inspection of the tax impossible or difficult, as well as in the case of application of the principle of autonomy of establishment, which makes each branch an independent unit in the case of individualized taxable events, as in the federal sphere, in the case of the Tax on Manufactured Products (IPI).

35. With regard to the tax domicile of legal entities, it should be noted, however, that the Superior Court of Justice - STJ, in REsp 1137236/SC (DJe 15/08/2011), when admitting the effectiveness of article 34, sole paragraph, of Law no. 4,154, of 1962, as well as of article 212 of the Regulation approved by Decree no. 3,000/99, decided that this specific rule is in accordance with the general CTN rule. 212 of the Regulation approved by Decree 3,000/99, decided that this specific rule is in line with the general rule of the CTN, so that choosing to establish the head office (management and administration centre) in a given place implies electing there, in principle, its tax domicile.

For the II, PIS-Import and Cofins-Import, pursuant to article 22 of the CTN and article 5 of Law 10865/2004, which define the taxpayers of these taxes, it is clear that the taxpayer is the importer. And there is the express determination in these provisions that the person who promotes the entry of foreign goods in the national territory is considered importer:

CTN Art. 22 Taxpayer is

I - the importer or whoever the law equates to him;

II - the winning bidder of seized or abandoned products. Decree-Law No. 37/1966

Art.31 - The following are tax payers: (Redrafted by Decree-Law 2.472, of 01/09/1988)

I - the importer, considered to be any person who promotes the entry of foreign goods into the National Territory; (Redrafted by Decree-Law No. 2.472, of 01/09/1988)

Law 10.865/2004

Art. 5 The taxpayers are:

I - the importer, thus considered to be the individual or legal entity that brings foreign goods into the national territory;

II - the individual or legal entity contracting services from a resident or domiciled abroad; and

III - the beneficiary of the service, in the event that the contracting party is also resident or domiciled abroad.

Sole Paragraph. The addressee of an international postal consignment indicated by the respective sender and the purchaser of goods in bonded warehouses are equivalent to the importer.

Adds arguments that the indication of the parent CNPJ as taxable entity did not cause any loss, whether in the right of defense or in the possibility of recording the assessed facts by the establishment that caused the taxable event of the tax. Presents the position provided by the Internal SC Cosit no. 8/2013, according to which mere irregularities in the identification of the tax debtor that do not affect the exercise of the adversary proceeding do not generate nullity of the assessment act, and therefore it is not necessary to correct the assessment.

In the first explanation of vote, judge Ricardo Serra Rocha clarified that he followed the conclusions, understanding that in view of the claim of offense to the institute of the autonomy of the establishments, what must be analyzed is whether the centralized assessment was sufficient to give rise to the nullity of the assessment.

Firstly, the discussion at issue is restricted to the instrumentality of the assessment, that is, the use of the parent company's CNPJ by that of the branch (form element), which in no way entangles itself with the correct identification of the tax debtor (by the personal criterion of the matrix rule of levy), since the product of the assessment is duly directed to the (legal) person obligated to the performance of the obligation and/or penalty, which eliminates the possibility of material defect.

Secondly, it is important to verify whether the occurrence of the error or irregularity in the form element caused a defect in the assessment, which, for such, it is necessary to examine whether the right of defence was denied.

In this case, on the contrary, it was fully demonstrated in the case records by the auditors (and even more clearly with the performance of the tax investigation) the quantum of the credit assessed that was attributed to each establishment of the assessed taxpayer, whether parent company or branch office, meaning that the fact that the assessment was consolidated only in the CNPJ of the parent company (0001), in no way hindered the ample defense, and did not cause any loss to the assessed legal entity.

Thus, due to the inexistence of damage to the legal entity assessed (GKN DO BRASIL LTDA.), there is no reason for the defending party in its plea of nullity of the present assessment, not even the part referring to the two (02) branch offices listed, and it cannot be forgotten that the assessed company fully exercised its right of defense, contesting the issues of the assessment, There is thus no reason to redo a new assessment, under the alleged allegation of breach of the autonomy of the establishments, which would border on an exaggerated formalism, in total disagreement with the principle of instrumentality of forms.

Lastly, I consider it appropriate to bring to mind excerpts from the Summary of REsp: 1.355.812 - RS (2012/0249096-3), Reporting Justice MAURO CAMPBELL

MARQUES, Date of Judgement: 22/05/2013, Date of Publication: DJe 31/05/2013, as follows:

(...)CIVIL PROCEDURE AND TAX. TAX EXECUTION. TAX DEBTS OF THE PARENT COMPANY. ATTACHMENT, THROUGH THE BACEN-JUD SYSTEM, OF AMOUNTS DEPOSITED ON BEHALF OF THE BRANCHES. POSSIBILITY. CORPORATE ESTABLISHMENT AS OBJECT OF RIGHTS AND NOT AS SUBJECT OF RIGHTS. CNPJ PROPER OF THE BRANCHES. IRRELEVANCE REGARDING THE PATRIMONIAL UNITY OF THE DEBTOR.

1. Within the scope of private law, whose general principles, in light of article 109 of the CTN, are informative for the definition of the institutes of tax law, the branch is a type of business establishment, being part of the assets of a single legal entity, sharing the same partners, articles of association and corporate name or denomination of the parent company. In this condition, it consists, according to the majority doctrine, in a universality of fact, not bearing its own legal personality, not being subject of rights, nor a person distinct from the business company. It is an instrument used by the entrepreneur or partner to exercise its activities. (emphasis added)

2. The discrimination of the company's assets, through the creation of branches, does not affect the unity of the assets of the legal entity, which, as a debtor, must answer for its debts with all of its assets, in light of the rule of procedural law set forth in article 591 of the Code of Civil Procedure, according to which "the debtor answers, for the performance of its obligations, with all of its present and future assets, except for the restrictions established by law".

3. The tax principle of the autonomy of establishments, whose normative content establishes that they must be considered, in accordance with the specific legislation of each tax, autonomous and independent units in the legal-tributary relations entered into with the Tax Administration, is an institute of substantive law, linked to the issue of the birth of the tax liability of each tax specifically considered and has no relation with the patrimonial liability of debtors set out in a procedural law regulation, or with the limits of liability of the assets of the company and partners defined in corporate law. (emphasis added)

4. The obligation for each establishment to register with its own CNPJ number has special relevance for the inspection activities of the tax authorities, and does not detract from the unity of the company's assets. It should be noted that the CNPJ registration of a branch is derived from the CNPJ of its parent company.

5. In this sense, to limit the satisfaction of the public credit, notably the tax credit, to only the assets of the establishment that participated in the situation characterized as taxable event is to adopt an absurd and odious interpretation. Absurd because it cannot be reconciled, for instance, with the collection of credits in a bankruptcy situation, where all the assets of the legal entity (all establishments) are gathered for payment of all creditors, or with the possibility of contractual subsidiary liability of the partners for the obligations of the company as a whole (see, for instance, arts. 1.023 and 1.023 of Decree-law No. 454/91).(v. g. arts. 1023, 1024, 1039, 1045, 1052, 1088 of CC/2002), or with the administration of all establishments of the company by the same resolution, direction, management and supervision bodies. Odious because, as a matter of principle, the private creditor cannot have more privileges than the public creditor, except for legally expressed and justifiable exceptions. (emphasis added)

6. Special Appeal known and provided. Decision submitted to the system of art. 543-C of the CPC and Resolution STJ no. 8/08.

(...)In view of all the foregoing, there is no nullity of the present assessment, not even in reference to the part of the 02 (two) branch offices.

In the second explanation of vote, judge Ícaro Nonato Lopes Cezar raised the partial nullity of the assessment. He argues that when issuing the tax assessment notice, the tax authority has the duty to identify the tax debtor, article 142 of the CTN, and according to article 121 of the CTN, the tax debtor of the principal obligation is considered a taxpayer when it has a personal and direct relation with the situation that constitutes the respective taxable event.

It cites legislation that defines the taxpayer as the importer for the purposes of IPI, II, Pis and Cofins, concluding that as determined by the RFB the import declaration will be registered by the importer.

He clarifies that under the tax viewpoint the branch has passive legitimacy to figure in the legal relation between the tax authorities and the taxpayer, being that article 127 of the CTN the tax domicile of the taxpayer will be that of each establishment in relation to the acts or facts that give rise to the obligation.

Law 9779/99, art. 15, defines the cases in which the calculation and collection of taxes must occur in a centralized manner, and in other cases they can occur in a decentralized manner:

Therefore, I believe that in case of a tax whose taxable event occurs individually in the branch and if there is no legal requirement of ascertainment or payment centrally in the head office, requirements that do not occur in the case of taxes levied on foreign trade, the establishments of the head office and branches are to be considered independent entities. Therefore, in the tax actions referring to the procedures performed in relation to the branch, only the branch may be considered taxpayer and, consequently, on it the tax requirement should fall.

It also uses Cosit Internal SC No. 8/2013 to justify its position:

8.3 In other words, there is a mismatch within the concrete normative act (assessment or tax assessment notice) between what is stated therein and the facts occurred in the phenomenal world. In this case, it is the error in the factual situation that the one appointed as taxable person actually was. Examples (not exhaustive) of errors that may be considered factual in the identification of the taxable person are

a) Entry made against the deceased, instead of being directed to the estate or successors.

b) Posting against the parent company, rather than the particular subsidiary.

c) Assessment made against the party responsible due to an error in the analysis of the factual or documentary situation.

d) Misidentification of the person responsible for the management of a company, as at the time of the taxable event he was no longer responsible for that act (but he would be if he were responsible).

After presenting the positions of the inspectors, all from the DRJ, and the appellant, let us move on to the conclusions.

As can be seen from the reading of the positions presented, the error in the identification of the tax debtor may be a formal or material defect. Therefore, the case law has been positioned either by the nullity of the assessment or by the possibility of its correction.

For those who advocate that it is a formal defect, for not complying with formal requirements existing in art. 142 of the National Tax Code (CTN) and arts. 10 and 11 of Decree 70235/72, its cure is possible, provided that the right of defence has not been denied.

On the other hand, for those who understand it as a material defect, the tax levy rule would be harmed and therefore the assessment would be null and void.

In advance of my position, I understand that the use of the CNPJ of the head office instead of that of the branch office must be registered within the possibilities of formal error of the entry. I explain.

According to article 142 of the CTN, the assessment must identify the taxpayer:

Art. 10 - The writ of infraction shall be drawn up by a competent public officer at the place where the infraction was detected and shall mandatorily contain

I - qualification of the offender;

II - the place, date and time of writing;

III - the description of the fact;

IV - the legal provision infringed and the applicable penalty;

V - the determination of the requirement and the summons to comply with it or challenge it within thirty days;

VI - the signature of the authorising officer and an indication of his or her position or function and registration number.

Art. 11 - The assessment notice will be issued by the organ that administers the tax and must contain

I - the qualification of the notified;

II - the amount of the tax credit and the deadline for collection or contestation;

III - the legal provision infringed, if any;

IV - the signature of the head of the issuing body or other authorised officer and an indication of his or her position or function and registration number.

Sole Paragraph. The notice of assessment issued through an electronic process need not be signed.

From the reading of the provisions cited that deal with the definition of the taxpayer, the importer, the tax residence one can reach a single conclusion, in fact the taxable person of the tax obligation, the taxpayer, or in this case, the importer is the establishment that gave wings to the occurrence of the taxable event.

All case law is moving in this direction, and it would be improper to cite all CARF, DRJ and judicial decisions that adopt this understanding, since it borders on common sense.

However, in the case at issue, it is necessary to verify whether the identification of the tax debtor in the assessment gives rise to the decree of nullity of part of it. I say part of it because, as already stated, we are dealing with a universe of 2,236 statements, of which only 24 are from the establishments, the majority being recorded by the head office. There is no way to adopt the position that 24 statements contaminated the entire assessment, since it is possible to separate them, and the appellant demonstrated to be perfectly aware of this, which did not harm its defense.

In agreement with REsp 1.355.812, RS (2012/0249096-3), I believe that the tax principle of autonomy of establishments has no relation with the patrimonial responsibility of debtors, and the legal entity is a patrimonial unit, therefore limiting the satisfaction of the tax credit to only the assets of the establishment that participated in the situation characterized as a taxable event is to adopt an absurd and hateful interpretation.

The cases of nullity are provided for in art. 59 of the PAF, which determines that acts drawn up by an authority lacking competence or withholding the right of defence will be null and void. And art. 60 provides that mere irregularities, inaccuracies and omissions will not result in nullities, especially when they have no influence on the solution of the dispute.

In this case, the identification of the tax debtor by the head office and not by the branch office did not affect the appellant's right of defense. We see that the assessment is correctly directed to the taxpayer, and as already explained in the Special Appeal, the legal entity is a patrimonial unit.

And SC Cosit no. 8/2013, used here in parts, sometimes to defend one position and sometimes another, is clear in explaining that "there is a formal defect when there has been a mistake of fact in the identification of the taxpayer, which arises from an error as to the analysis of facts or documents but whose legal interpretation is correct".

The Query Solution continues, clarifying that in this case there is no need for a new assessment if the taxpayer has contested the merits of the act, adequately qualifying and fully exercising the right of defence. And it clarifies:

It is enough to register the correct identification of the taxpayer in the process and proceed with it, for the sake of instrumentality of the forms. The act is validated.

The company exercised its right of defence, entering into the merit of the notice.

I therefore conclude that a mere irregularity in the identification of the tax debtor that does not hinder the exercise of the adversary proceeding does not generate nullity of the assessment act, and the occurrence of a defect in the assessment instrument that constitutes a mistake of fact is convalidable and, for this reason, may be annulled due to a formal defect.

2 - Nullity of the tax assessment notice for having as object customs valuation and having demanded documents related to the transfer price

The Appellant claims that the MPF (Mandado de Procedimento Fiscal) was filed to verify the regularity in the determination of the customs value, but since the beginning of the tax proceeding, documents and information were required that referred to the transfer price. These are two different institutes, with their own legislation and different scope of application. And also that the MPF was issued for the Income Tax - IR but is also based on the Customs Regulation - RA.

Art.75 The tax calculation basis is (Decree-Law No. 37 of 1966, Art. 2, as amended by Decree-Law No. 2472 of 1988, Art. 1, and Agreement on the Implementation of Article VII of the General Agreement on Tariffs and Trade-GATT 1994- Agreement on Customs Valuation, Article 1, approved by Legislative Decree No.^o 30, of 15 December 1994, and promulgated by Decree No.^o 1.355, of 30 December 1994):

I- where the rate is ad valorem, the customs value as determined in accordance with the rules of Article VII of the General Agreement on Tariffs and Trade - GATT 1994; and

II- when the tax rate is specific, the quantity of goods expressed in the established unit of measure.

The Final Act of the Uruguay Round of GATT Multilateral Trade Negotiations was approved by Legislative Decree No. 30/1994, and promulgated by Decree No. 1,355/1994, incorporating the results of the Uruguay Round of GATT Multilateral Trade Negotiations into the Brazilian legal system, and the AVA/GATT became mandatory under the agreements signed by Brazil.

In the case of Transfer Pricing, we have that when a Multinational Enterprise Group (MNE), that is, a group of associated companies with commercial establishments in two or more countries, as defined by the OECD 2010, Organization for Economic Cooperation and Development, determine the prices of goods within the group is known as Transfer Pricing.

The OECD has developed guidelines for the methodology to be applied when establishing or testing transfer prices for direct tax purposes. That methodology, based on the arm's length principle, is generally accepted as the international standard used by companies and tax authorities.

From the early 1900s countries tended to base their transfer pricing tax law provisions on the arm's length principle, being implicitly included in treaties concluded by France, the United Kingdom and the United States. The first international guidance was developed by the OECD in 1979, and in 1995 the OECD published the revised guidance - Transfer Pricing Guide for Multinational Enterprises and Tax Administrations. This guidance has played a leading role in influencing the development of transfer pricing legislation and practice globally. A revised version was published in 2010.

In Brazil, article 18 of Law 9430/1996 brought provisions about the applicability of transfer pricing in the national legislation. And according to the current legislation, the taxpayer, whenever practicing import or export operations of goods and services with related companies abroad, for purposes of determining the calculation basis of the IRPJ (Corporate Income Tax) and CSLL (Social Contribution on Net Profit), is obliged to present in its DIPJ the comparison between the weighted average prices practiced in its operations with the parameter prices, using any of the methods provided.

The relationship between customs valuation and transfer pricing has been discussed in several national and international forums over the past years. The business community has expressed concern about Customs using available transfer pricing information prepared for direct tax purposes and what would be the impact of transfer pricing adjustments on customs valuation. There are particularities in the legal frameworks of each tax and it would be important to assess to what extent the information contained in the documentation for transfer pricing purposes could provide useful information to Customs.

From these discussions, the WCO's Technical Committee on Customs Valuation (CTVA) has confirmed the principle that transfer pricing documentation can provide useful information to Customs regarding transactions between related parties.

Currently the WCO, OECD group and the World Bank are working together to encourage customs and tax administrations to establish bilateral lines of communication to exchange knowledge, skills and data to ensure that each authority has a broader view of the business and compliance records of multinational companies.

Within this scope, WCO and OECD have held two joint conferences so far, 2006 and 2007, to help obtain a better understanding on the subject, gathering experts from customs, tax and private sector. After the second conference, in 2007, a Focus Group was established to discuss the key issues raised during the conferences, which concluded that the "circumstances surrounding the sale" provision was particularly relevant.

Following this definition by the Focus Group, the topic "Related Party Transactions under the Valuation and Transfer Pricing Agreement" has been included as a regular item since 2008 on the CTVA's work agenda, culminating in the adoption of CTVA Comment 23.1 which recognizes that a transfer pricing study may be useful for the examination of related party transactions in the context of customs valuation, confirming the principle that transfer pricing is a source of information for Customs.

This position is compacted by the International Chamber of Commerce, ICC, as a global business organisation with the authority to speak on behalf of businesses in all sectors, in all parts of the world, which has produced a policy statement (updated in 2015) setting out a series of comments and proposals reflecting the trade's view on the relationship between transfer pricing and customs valuation.

Furthermore, in the national legislation, the CTN authorises tax administrations to examine books and documents:

Article 195. For the purposes of the tax law, no legal provisions excluding or limiting the right of industrial or productive traders or producers to examine goods, books, files, documents, papers and commercial or tax effects, or their obligation to exhibit them, shall apply.

Sole Paragraph. The compulsory books of commercial and tax bookkeeping and the proof of entries made therein shall be preserved until the statute of limitations for tax credits deriving from the transactions to which they refer has expired.

And in accordance with what is determined by art. 32 of IN SRF no. 327/2003 and the provisions of the AVA/GATT, when the information provided is not sufficient to confirm the declared value, the inspection may request the provision of explanations, documents or other evidence:

Art. 32. When the information provided is not sufficient to prove the declared value and the customs inspection has reasons to doubt the veracity or accuracy of the information or documents presented to justify such declaration, it may request the importer to provide explanations, documents or other evidence that the declared value represents the amount effectively paid or payable for the imported goods, adjusted in accordance with the provisions of Article 8, and to present, as the case may be, elements to proceed with valuation based on a substitute method.

Therefore, it is clear that the use of transfer pricing as a subsidy to examine transactions between related parties in the context of customs valuation is a practice recommended by international organizations, WCO, OECD and ICC, and provided in the national legislation.

3 - Inapplicability of the 1st valuation method

The applicant argues that the first method of customs valuation should be used, which should only be set aside after intense investigation by Customs. It adds that it is mandatory to apply the methods in sequence. It continues that the transaction value between related companies is allowed when acceptable for customs purposes.

Together with the objection, it presented a comparative spreadsheet between the transaction values of 3 items and the criterion price practiced by other importers of those same items, competitors of the Appellant. To this end, it used data published by the RFB to support market studies and formulation of sector policies and analyses, based on the data for the main NCMs indicated in the Infraction Notice, 8708.99.90, 7215.90.10 and 3926.90.90. It found that the prices practiced by it are higher than the similar ones informed in the RFB publication. Concluding that the linking did not influence the prices.

According to the Valuation Agreement, the 1st valuation method, transaction value, shall be applied in the cases where there is no link between the related companies or in the case that such link has not influenced the prices charged:

Article 1

1. The customs value of imported goods shall be the transaction value, that is the price actually paid or payable for the goods in a sale for export to the country of importation, adjusted in accordance with the provisions of Article 8, provided that: (...).

(d) there is no link between the buyer and seller or, if there is, that the transaction value is acceptable for customs purposes, in accordance with the provisions of paragraph 2 of this Article.

2. (a) In determining whether the transaction value is acceptable for the purposes of paragraph 1, the fact that there is a link between the buyer and seller under Article 15 shall not, of itself, be sufficient reason to find the transaction value unacceptable. In such a case, the circumstances of the sale shall be examined and the transaction value shall be accepted provided that the relationship did not influence the price. If the customs administration, on the basis of information provided by the importer or otherwise, has grounds for considering that the duty has influenced the price, it shall communicate those grounds to the importer, who shall be given a reasonable opportunity to object. If the importer so requests, the reasons shall be given to him in writing;

(b) in the case of a sale between related persons, the transaction value shall be accepted and the goods valued in accordance with the provisions of paragraph 1, where the importer demonstrates that such value closely approximates to one of the following, valid at the same time or at approximately the same time:

(i) the transaction value in sales to unrelated buyers of identical or similar goods destined for export to the same importing country;

(ii) the customs value of identical or similar goods, as determined on the basis of the provisions of Article 5;

(iii) the customs value of identical or similar goods, as determined on the basis of the provisions of Article 6;

In applying the above criteria due account shall be taken of demonstrated differences in commercial levels and quantities, of the items listed in Article 8 and of costs incurred by the seller in sales in which he and the buyer are not tied and which are not incurred by the seller in sales in which he and the buyer are not tied.

(c) The criteria set out in paragraph 2(b) shall be used at the initiative of the importer and exclusively for comparison purposes. Substitute values cannot be established on the basis of the provisions of paragraph 2 (b).(emphasis added)

Therefore, in the case of intercompany linkage, the transaction value may be accepted, but if the customs administration, based on information provided by the importer or by other means, has reason to believe that the linkage has influenced the price, it should request the importer to provide clarification.

In the present case, the inspection verified the connection between the companies, and the connection was informed in the Import Declarations (pages 3260 to 4063). From there, it then started an investigation to verify whether the link had influenced the prices, verifying that there were significant differences in the prices practiced, based on several elements, including the DIPJ to verify the transfer price.

Having reasons to consider that the binding influenced the price, it requested clarifications from the importer (pages 2209 to 2210). It should be noted that customs valuation is governed by the principle of cooperation between the parties, therefore, upon evidence, the inspection requests clarifications from the importer, and only then, weighing the information available and the clarifications provided, decide on the need to discard the application of the valuation method and start applying the next method.

The answers presented by the appellant were insufficient to demonstrate that the binding had not influenced the prices (pages 2,217/2,236) as evidenced in the DIPJ. There was also no presentation by the company of criteria values under the terms set forth in paragraph 2(b), article 1 of the AVA/GATT, which could demonstrate that the prices practiced by the importer are close to the prices that would be practiced among non-bound parties:

The elements presented by the importer, in response to Notice 054/2013 (doc. 6 fls. 2217 to 2236), are insufficient to rule out the evidence contained in the DIPJs and in the answers submitted to previous summonses that the prices were actually influenced by the binding for most of the imported products. The so-called criterion values, as established in letter (b) of paragraph 2 of Article 1 of the AVA/GATT, which could demonstrate that the prices practiced by the importer are close to the prices that would be practiced among non-bound players, were not presented (Inspection Report - fls. 4622).

The prices practiced by the company were defined globally, from a "transfer price catalogue" - "TP_Catalogue_2006" (pages 4627) and by the inferiority of the prices practiced in the imports in relation to the parameter prices informed in the DIPJ, for transfer price purposes (pages 4,046/4,352).

Except in relation to some products listed in the reports presented by the company, in which the prices practiced are higher than the parameter prices contained in the statements that supported its DIPJs, for the other products, the taxpayer's own statements already prove, therefore, that the prices practiced were in fact influenced by the binding. Thus, based on what item 3, of paragraph 2, of the Note to Article 1, of the AVA/GATT provides, the impediment to apply the First Customs Valuation Method would only NOT apply to those situations in which the prices practiced are sufficient to cover the costs and ensure a profit representative of the overall profit. (Inspection Report - pages 4627)

The catalogue used for most items and components is the "TP_Catalogue_2006", dated 03/01/2006 (doc. 7 pages 2336 to 2351), which presents the set of guidelines valid for all companies participating in the "transfer price scheme", as named in the document itself. On the price obtained through the guidelines of the catalogue, a reduction of 1% is applied, referring to 2007 and, on the resulting value, another reduction of 1%, referring to 2008, following instruction received globally from the head office, as stated by the importer. The prices, therefore, are formed from a corporate logic that does not depend on the importer and exporter and does not require any previous commercial operation, which explains why many products are being exported at prices below production costs, as we have seen previously. (Monitoring Report - pages 4628)

Although later, because it was not submitted at the proper time stipulated in the AVA/GATT for exchange of information between the customs administration and the importer, the Appellant submitted with the objection a comparative spreadsheet between the transaction values of 3 items and the criterion price practiced by other importers of those same items, competitors of the Appellant. To this end, it used data published by the RFB to support market studies and formulation of sector policies and analyses, based on the data for the main NCMs indicated in the Infraction Notice, 8708.99.90, 7215.90.10 and 3926.90.90. It found that the prices practiced by it are higher than the similar ones informed in the RFB publication. Concluding that the linking did not influence the prices.

However, the criteria for the formation of the price parameter are set out in Art. 1,

§2b of the AVA/GATT, and the Appellant did not provide any justification that such data fit those criteria, it limited itself to presenting three NCMs that it identified as goods similar to its own, according to art. 2 of the AVA/GATT that provides for identical goods or art. 3 on similar goods.

2 (b) in the case of a sale between related persons, the transaction value shall be accepted and the goods valued in accordance with the provisions of paragraph 1 where the importer demonstrates that such value closely approximates to one of the following in force at or about the same time:

(i) the transaction value in sales to unrelated buyers of identical or similar goods destined for export to the same importing country;

(ii) The customs value of identical or similar goods, as determined on the basis of the provisions of Article 5, shall be determined in accordance with the provisions of this Article;

(iii) the customs value of identical or similar goods, as determined on the basis of the provisions of Article 6;

(c) The criteria established in paragraph 2 (b) shall be used at the initiative of the importer and exclusively for comparison purposes. Substitute values may not be established on the basis of the provisions of paragraph 2 (b). (emphasis added)

In addition, SRF Ordinance No. 306/2007, which provided for the disclosure of statistical data on imports, revoked by SRF Ordinance No. 361/2016, provided that statistical data on import operations would be disclosed to support market studies, policy formulation, and sectoral analyses. They could also be used as a monitoring tool to combat the practice of unfair competition and to survey

The applicant claims that contrary to the AVA/GATT, the inspection did not exhaust each of the methods to arrive at the application of the 6th method, and that it should have used the statistical data of SRF Ordinance 306/2007.

We have already explained in the previous item the impossibility of using statistical data as they do not meet the AVA/GATT requirements and given the impossibility of recognising the identity and similarity of the goods they deal with with with the goods subject to customs valuation.

Contrary to what is affirmed by the appellant, the tax report demonstrates the analysis of each valuation method in sequence and the reasons for not using each one.

As to the 2nd method, the inspection clarifies that the importer itself informed that it is not possible to use the method related to identical goods, since its related suppliers do not promote sales to other non-bound importers in Brazil (pages 4632):

Article 15, paragraph 2 of the AVA sets out the concept of identical goods as follows:

(a) In this Agreement, "identical goods" means goods which are alike in all respects, including physical characteristics, quality and commercial reputation. Minor differences in appearance shall not prevent goods which otherwise meet the definition from being considered identical.

Only goods produced in the same country as the goods subject matter of valuation and preferably by the same person may be considered identical. This possibility is already refuted, since, according to information provided by the taxpayer, its related suppliers do not promote sales to other unrelated importers in Brazil (doc. 4a pages 2058 to 2061).

However, the inspectorate recognises that it is possible to use goods produced by different companies.

It is important to highlight that, according to paragraph 4 of the Interpretative Note to article 2 of the AVA/GATT, the transaction value of identical imported goods must be understood as a customs value adjusted according to the determinations of paragraphs 1(b) and 2 of this article, and that has already been accepted based on article 1. Thus, in the application of the second valuation method, only the transaction value of identical goods that has been previously analyzed and accepted according to the provisions of the first valuation method may be used. In other words, only transactions that prove to meet the requirements for application of the first method may serve as a paradigm for valuation of other goods by applying the second method.

The first question that arises, therefore, is to verify if there are import operations of goods identical to the imported goods. Secondly, if the operations with such goods meet the requirements set out in Article 1 of the Directive. Without overcoming these two steps, it is not even possible to consider the applicability of this valuation method.

As in reply to the summons the importer informed that the company does not acquire identical or similar products from non-bound suppliers and that its bound exporters do not export identical or similar products to other non-bound importers in Brazil, the inspection commenced investigation on internal operations or operations from third parties that could be considered identical, not forgetting to rule out internal operations with the importer itself or its suppliers.

In the spirit of cooperation that guides the valuation agreement, the company was ordered to inform whether there were manufacturers of products identical or similar to the imported products, informing that although there were products manufactured by competitors they could not be considered identical or similar because of the technology incorporated in each product by each company (pp. 4634).

The inspection also researched the foreign trade system - Siscomex and did not find products with a similar description, since they are specific products.

We then apply the 3rd method, which uses the transaction value of similar goods sold for export to the same importing country and exported at the same time as the goods being valued, or at an approximate time.

Art. 15, paragraph 2 (b) in this Agreement, "similar goods" are those which, although not alike in all respects, have similar characteristics and material composition, enabling them to fulfil the same functions and be commercially interchangeable. Factors to be considered in determining whether goods are similar include their quality, commercial reputation and the existence of a trademark;

Again we can reproduce the importer's information that its suppliers do not sell to other unrelated buyers in Brazil. The same considerations made for the second method were applied, mutatis mutandis, to the third method, and this method is also discarded.

Analyzing the application of the 4th method, or deductive method. It starts from the sale value of the imported goods, to unbound persons, applying the deductions provided for in order to reach the import value of the goods.

In the case at hand, it had already been verified that the imports were intended for production and not for resale. Even so, the company was summoned to inform whether it had carried out resale transactions, with the respective commercial documents, and answered that it did not carry out resales of the products imported from related companies. And exhausting the possibilities of application of the 4th method, the inspection was positioned by the impossibility of applying the value of the product processed by the company, since the production process is complex and the products lose their identity after processing:

Paragraph 2, Article 5 of the AVA/GATT, further establishes that the customs value could be determined from the unit price at which the imported and further processed goods are sold in the country of importation, if so requested by the importer. Article 83, item II, of the Customs Regulation, approved by Decree 6759, 2009, determines that this possibility is independent of the importer's request, but should be applied in accordance with the provisions of the Interpretative Note to Article 5. Paragraph 12 of the said Interpretative Note states that this provision will not normally apply when, as a result of further processing, the goods lose their identity.

included unduly. Consequently, the amount of the fine for these items should be adjusted since there was no error in providing information on the DI for them.

Document 3 is annexed to the objection, pages . 4767.

This matter was the subject of one of the questions submitted for clarification in the diligence determined by the CARF, and the inspection responded as follows:

On page 4,627 there is a clarification that, according to item 3 of paragraph 2 of the Note to Article 1 of the AVA-GATT, "the impediment to the application of the First Valuation Method would only NOT apply to those situations where the prices charged are sufficient to cover costs and ensure a profit representative of the overall profit".

Thus, the products that had been declared at prices higher than the cost of production plus acceptable profit margins had their declared prices preserved, without disqualification from the First Method, without being revalued, therefore. The other products, in view of the impediment to the application of the First Method, based on the same reasoning, were valued by applying the Sixth Method.

We also point out that on pages 4621 and 4622 there is clarification that the imported products, in relation to which there was no reference in the statements of calculation of prices parameters (indicated with the expression #N/D) and, therefore, the composition of their production costs was not known, as well as the products not identified by reference code in the additions of the DI (#N/D), were not revalued and had, likewise, their declared value preserved by the First Method.

The application of the Sixth Method, therefore, was restricted to products whose declared prices were lower than the cost of production plus profit margins. The profit margins considered acceptable were those segregated by family of products informed by the importer itself (pages 4,646). Among these, only the lowest profit margin practiced in each of the inspected years was used, corresponding to the products of the "OFF-ROAD AND AGRICULTURAL" family, whose margins were 30.3% in 2010, 21.8% in 2011, 23.8% in 2012 and 12.2% in 2013 (fls. 4,647), as shown in the exhibit below:

...

The comparison between prices charged and costs plus acceptable profits was made in foreign currency. The parameter prices, stated in Reais in the Statements, were reconverted to the foreign currency of origin by applying the exchange rate used by the company itself (pages 4599). (emphasis added)

It is clear that, differently from what is claimed by the Appellant and as reported by the Inspection, products that had been declared at prices higher than the cost of production plus acceptable profit margins were not considered. These products had their declared prices preserved, without disqualification of the First Method, without being revalued, therefore.

And continues clarifying that the imported products, in relation to which, there was no reference in the statements of calculation of prices parameters (indicated with the expression #N/D) and, therefore, the composition of its production costs was not known, as well as the products not identified by reference code in the additions of the DI (#N/D), were not revalued and had, in the same way, its declared value preserved by the First Method.

The application of the Sixth Method was therefore restricted to those products whose declared prices were lower than the cost of production plus profit margins.

As for the allegation that the fine should be recalculated since there was no error in the provision of information for these items, this is also unacceptable.

The tax report states that the fine was not levied on products that were not revalued:

17- For the calculation of the 1% administrative fine over the customs value, whose justification is described in the next chapter, we considered irrelevant the fact of the operation being or not subject to taxation. On the other hand, considering that this fine has as imputable fact the undue declaration that the binding had not influenced the practiced price, we considered as calculation basis the sum of values in reais of goods whose calculated parameter prices (production cost plus business profit) were higher than the declared prices.

18- The calculation base of the 1% fine mentioned in the previous item can be different from the calculation base of the I.I. and other taxes, because, for the taxes calculation, we considered the reconstituted calculation base, which included the portions related to products whose parameter prices were higher than the declared prices, because the taxes paid at the registration of the DIs were deducted from the taxes calculated for each addition. It is reinforced that for the products where the prices were not considered influenced by the binding, we used in the reconstitution of the customs value the own prices informed in the DIs.

8.2 - Undue inclusion of imports from Uruguay

It claims that there is a report issued by PwC certifying that the values practiced in the transactions between GKN in Uruguay and GKN in Brazil are within market parameters.

As can be seen in the records, the independent company's opinion presented by the company (pages 4840/4842) does not prove the non-affectation of the transaction prices of the goods by the link between the importer and GKN in Uruguay.

The opinion analyses information regarding GKN DUSA's (Uruguay) transactions with its related companies against information from 22 independent auto parts companies for the purpose of documenting the analysis of transactions subject to the transfer pricing regime for the 2011 financial year.

And he does not bring any concrete data, and at no time mentions the non-influence of the link between the parties in the transaction prices of goods imported by GKN do Brasil, but only in a generic way concludes that in 2011 the profitability of GKN DUSA in transactions entered into with linked entities was not lower than that which would be obtained with non-linked entities.

Therefore, there was no proof of the non-affectation of the transaction prices by the link between the companies, and the inspection was correct in ruling out the first method of customs valuation.

8.3 - Misleading information of parameter prices (used for the purpose of determining transfer pricing adjustments) used alternatively for the application of the 6th method

The applicant claims that the parameter price informed by GKN for the calculation of the transfer price, for some cases, does not correspond to the effective cost of its suppliers plus a profit margin of 20%, CPL method, and that this effective cost is lower than that considered by the RFB.

In the spreadsheets presented for the allegations that the parameter price informed by GKN for the calculation of the transfer price (DOC. 05 - pages 4.786/4.797 and DOC. 06 - pages 4.798/4.801), there is no demonstration that the cost of the effective product of the products was lower than that resulting from the decrease of the profit margin of 20% of the parameter prices, nor that certain transactions were subject to adjustments in the deductible costs of the tax bases of the IRPJ and CSLL, due to prices practiced in the imports higher than the parameter prices, determined according to the CPL method chosen by the importer, for purposes of transfer price.

Only if there was a mistake in the calculation of the weighted average cost of imported products, in the determination of the parameter price, for transfer pricing purposes, using the adopted method (CPL), could justify the non-acceptance of the cost price resulting from the parameter price, once the 20% profit margin is defined by law.

In this situation, it would be up to the company to demonstrate the alleged correct values of price parameters, and present rectification of its DIPJ. The realization of a profit margin higher than that determined by the transfer pricing legislation in import transactions does not interfere in the weighted cost declared by the company.

I conclude that the applicant's arguments that do not mischaracterise the declared weighted average cost of the products, being unaccompanied by any evidence.

8.4 - Inclusion, in the tax assessment notice, of imports that were included as adjustments in the tax bases of the IRPJ and CSLL for the purposes of determining transfer prices (CPL method), due to the adoption of a profit margin higher than 20%

It alleges in summary that items subject to adjustment for customs valuation purposes were included as items that were included by the company as subject to adjustment in the transfer price, exactly because the customs value was higher than the cost plus 20%, CPL method.

And continues claiming that there was inconsistency since it proceeded to add values related to transfer price adjustment, by the CPL method, to the tax bases of the IRPJ and CSLL because the price practiced in these imports was above the acceptable by the RFB, and at the same time were considered with a value below the acceptable for customs purposes.

The Tax Report (pages 4644) clearly substantiates this distinction:

[...] Obviously, the 20% profit established in Law 9430 of 1996 cannot be considered the profit usually made for purposes of using the CPL method. On the other hand, as we have already seen above, there is no information available that allows the individualization of the amount of profits found in sales of goods of the same class or kind made by producers in the country of export to the country of import, as established in letter (b) of paragraph 1 of Article 6 of the AVA/GATT, reinforced by the Interpretative Note to Article 6, paragraph 4.

In the segregation of the unit cost value, starting from the parameter price, for purposes of transfer price with the utilization of the CPL method (Production Cost Plus Profit), the Surveyors used the profit margin determined by art. 18, item II, for the CPL method, in verbis.

Art. 18 - The costs, expenses and charges related to goods, services and rights, stated in the import or acquisition documents, in the operations carried out with bound person, will only be deductible in the determination of the actual profit up to the amount that does not exceed the price determined by one of the following methods: (See Provisional Measure nr. 478, of 2009)

[III - Production Cost Plus Profit Method - CPL: defined as the average weighted cost of production of goods, services or rights, identical or similar, plus taxes and fees charged on exports in the country where they were originally produced, and a profit margin of 20% (twenty percent), calculated on the calculated cost.

For the determination of the goods' unit price by applying the 6th customs valuation method, it was used as profit margins considered acceptable, the smaller profit margin, among those informed by the importer, regardless of the valued product being identified as from the family of products of the margin used, and according to paragraph 1(b) of Article 6 of the AVA/GATT, corroborated by paragraph 4 of the Interpretative Note to Article 6 and the flexibilization enabled by paragraph 15 of Comment 15.1 of the Customs Valuation Committee, extracted from IN SRF no. 318/2003.

Article 6 of the AVA GATT

1. The customs value of imported goods, determined under the provisions of this article, shall be based on a computed value. The computed value shall be equal to the sum of

(a) the cost or value of materials and manufacture or processing, employed in the production of the imported goods;

(b) an amount for profit and general expenses equal to that usually found in sales of goods of the same class or kind as the goods being valued, such export sales being made by producers in the exporting country to the importing country;

Interpretative Note to Article 6, paragraph 4 4. The "amount for profit and general expenses" referred to in Article 6, paragraph 1(b) shall be determined on the basis of information provided by, or on behalf of, the producer, unless the figures are inconsistent with those usually recorded for sales of goods of the same class or kind as the goods being valued, such sales being made by producers in the exporting country for export to the importing country.

Technical Committee on Customs Valuation Comment 15.1. The methodology for obtaining data may vary from country to country, however, they may consist of inspections of known importers of goods of the same class or kind, who, upon request, could willingly provide data, and valuation case studies of known importers. Considering that companies may not have information on profits and overheads by product, the administrations may act according to the principle of examining profits and overheads relating to the narrowest range or group of goods on which sufficient information can be obtained.(emphasis added)

And, in the conversion of the customs value resulting from the application of the 6th valuation method to Reais, the exchange rate of the day of the registration of the DI was used, as determined by article 24 of Decree-Law 37/1966 c/c article 23 of the same normative, in verbis.

Article 24 - For the purposes of calculating the tax, amounts expressed in foreign currency will be converted into national currency at the exchange rate in force at the time of the taxable event.

Article 23 - In the case of goods shipped for consumption, the taxable event is considered to have occurred on the date of registration, at the customs office, of the declaration referred to in Article 44.

It is also important to mention that the exchange rates mentioned above were used with the number of decimal places presented, that informed by the company, with two decimal places (pages 2,271/2,272 and 4,599, previously copied) in the manner that would have been used in the original conversion, and that in force on the day of registration of the DI with five decimal places, as determined by the Central Bank of Brazil.

Therefore, the inspection adopted the correct procedure, applying the proper exchange rate at each conversion moment, and in the proper currency as well. And the entire procedure was performed based on the information provided by the company.

8.7 - Calculation of the customs value per DI for the purpose of drawing up the tax assessment notice

Finally, the appellant claims that when making the adjustments, the inspection considered all items of the DI and not only those that should be adjusted.

The matter was submitted to the diligence demanded by CARF and the inspection found some errors in the ascertainment of the amounts.

In the tax diligence resulting from this trial, the tax authorities corrected mistakes in the calculation basis statement presented (SHEET IV - pages 4.366/4.442), whether due to the non-inclusion of goods items not subject to valuation or due to the double appropriation of the freight value in the calculation basis of

22 operations, negotiated in incoterms10 CFR and CPT11, with the presentation of SHEET VI (sheets 4.867/5.039), replacing the former.

The inclusion of all product items, even those not valued, in the respective DI additions in the new Statement resolved the doubts raised as to the total declared value of the goods in each addition presented in the previous Statement. The example contained in the Tax Information (pages 5,046), resulting from the conversion of this judgment into diligence, illustrates well the adequate clarification of the issues raised in the Resolution of this Judgment Panel.

For example: The addition 001 of DI 10/2106539-2 (pages 4381) appears on SHEET IV with four products, when in fact this addition contains five products. The sum of the values of the five products is US$ 217,567.16, which is correctly stated in the column "VT ADDITION 6º MET". However, this value is greater than the sum of the 4 products that are listed on the SHEET.

With the purpose of correcting the errors cited, we have drawn up SHEET VI (sheets.

), in substitution of SHEET IV, containing, besides that information, also the demonstration of the calculation methodology of the customs value of each one of the additions of the DI, highlighting the products that were revalued by the application of the 6th Method and the products that were not revalued and that had their declared prices preserved.

9 - Information provided by the inspectorate during the visit

All sub-items of this item 9 were submitted to the DRJ in an opposition, and were answered, many times demonstrating the appellant's mistake in the presentation and analysis of the information. The appellant did not submit any new arguments in its voluntary appeal, which was received for reexamination. Many of the items, in fact, were accepted by the auditors in the tax information during the due diligence and also deemed valid by the DRJ appellate decision, not requiring reexamination, since it is a definitive matter in administrative litigation.

For the love of the debate and in order not to evade the examination of the dispute, I will review point by point, understanding to follow the position of the DRJ in all items because no new facts have been presented and the DRJ decision has exhausted all arguments pertinently.

9.1 - Items indicated with the expression #N/D that have been revalued

Although the tax report stated that items with the expression #N/D were not revalued, the applicant identified in spreadsheet VI items that were revalued.

As to DI 13/1586173-0 that the appellant uses as an example to justify that there were items in the inspection spreadsheet that were revalued, I clarify that this specific DI was removed from the assessment in the appellate decision because the DRJ considered that there was no demonstration of the taxable matter:

e) GRANT the nullity, due to material defect, of the II requirement and respective legal increases, referring to DI no. 13/1586173-0 (additions 001 to 009), for failure to demonstrate the taxable matter, in the total amount of: R$ 4,154.00 of II; R$ 3,115.50 of 75% fine; R$ 674.14 of default interest.

The DRJ thus analysed this plea when submitted in challenge:

Non-demonstration of the taxable matter. As per SAMPLE VI (pages 5022), additions 001 to 009 of DI no. 13/1586173-0 refer to products with unavailable parameter price, therefore, such transactions were not subject to customs valuation by the Inspection, as expressly informed in the mentioned spreadsheet, with the insertion of the information "Non-Revalued" for such additions.

However, for these additions, the ascertained customs value was shown to be higher than that declared, and the II corresponding to this difference between the ascertained and declared customs value was demanded (pages 111/112), with the information that such difference would have resulted from customs revaluation, by applying the 6th Method.

Therefore, not only is there a failure to demonstrate the origin of the tax base of the assessment, but also a lack of motivation, considering that this DI was not subject to customs valuation by the inspection, much less submitted to the 6th valuation method.

It can thus be verified that the requirement of the II and respective legal surcharges related to this DI, as it was not duly grounded, lacks an essential requirement for the formation of the assessment, in this case, the determination of the taxable matter, pursuant to article 142 of the CTN, in verbis. Such defect affects the very verification of the occurrence of the taxable event, taking into account that it is impossible to examine its appropriateness in the form presented.

Art. 142 - It is the exclusive competence of the administrative authority to establish the tax credit through assessment, understood as the administrative procedure aimed at verifying the occurrence of the taxable event of the corresponding obligation, determining the taxable matter, calculating the amount of the tax due, identifying the taxable person and, if applicable, proposing the application of the applicable penalty.

Sole Paragraph. The administrative activity of assessment is binding and mandatory, under penalty of functional liability.

In view of the foregoing, I consider there has been a violation of an essential requirement to the assessment, which renders the assessments related to DI no. 13/1586173-0 (additions 001 to 009) null and void, due to material defect, and the statute of limitations provided for in article 173, II, of the CTN, in the total amount of R$ 4,154.00 of II, R$ 3,115.50 of ex-officio fine, and R$ 674.40 of default interest.

So there is no contentious matter left.

The generic indication as to the existence of other items does not deserve to be accepted, since the appeal must be specific and generic allegations cannot be accepted without specific allegations and indications as to the errors found.

9.2 - Profit margins deemed acceptable

The applicant claims that the margin applied by the inspectorate did not undergo a detailed examination:

- That it used as a basis for its calculation the margins applied to products of the "OFF-ROAD AND AGRICULTURAL" family. However, it is important to note that the Impugnant has imported other types of goods that should not be included in this concept, such as items purchased for fixed assets, or items purchased for use and consumption in the production process, which have no relation to these families of products.

- That although these items do not present differences between customs values and import tax calculation bases, it is certain that they should not have their margins attributed, which denotes divergence of understanding on the part of the inspection.

- In the same vein, but with an impact on the calculation of late fines and interest, the Inspection also adopted these margins for items that do not represent inputs, such as labels, manuals, banners and displays, as per the example below for product 705068.

As already reproduced above for another item similar to the present one, the matter was the subject of the diligence and was answered by the inspectorate fls. 5042 and sgs.

It was also analysed in the judgment under appeal:

Firstly, he said that some inconsistencies were found in the presentation of the data on SAMPLE IV, but that for a better understanding of the methodology for calculating the customs value, he would resume some of the explanations contained in the Audit Report.

- That the application of the 6th Method was restricted to products whose declared prices were lower than the cost of production plus profit margins. The profit margins deemed acceptable were those segregated by family of products informed by the importer itself (pages 4646). Among these, only the lowest profit margin practiced in each of the years inspected was used, corresponding to the products of the "OFF-ROAD AND AGRICULTURAL" family, whose margins were 30.3% in 2010, 21.8% in 2011, 23.8% in 2012 and 12.2% in 2013 (fls.

4.647). (emphasis added)

- That the products declared at prices higher than the cost of production plus acceptable profit margins had their declared prices preserved, without declassification by the 1st method, without being revalued. The other products, given the impediment to applying the 1st method, based on the same reasoning, were valued by applying the 6th method.

- It was also pointed out on pages 4621 and 4622 that the imported products, in relation to which there was no reference in the statements of calculation of prices parameters (indicated with the expression #N/D) and, therefore, the composition of its production costs was not known, as well as the products not identified by reference code in the DI additions (#N/D), were not revalued and had, likewise, their declared value preserved by the 1st Method.

- That the price parameters, stated in Reais in the Statements, were reconverted to the foreign currency of origin by applying the exchange rate used by the company itself (pages 4599).

Customs Value Calculation Methodology

- That the customs value was calculated by addition of the DI, so that it could be safely appropriate the correct parcels of freight and insurance, and to be able to accurately deduct the amounts already collected from taxes. Thus, when in the same addition there were products to be revalued (6th Method) and products not revalued (maintenance of the 1st Method), the following methodology was followed:

1- For the products to be revalued:

a. From the parameter price converted to the original foreign currency, we calculate the cost, deducting 20% of the value (profit margin foreseen in the price and transference legislation).

b. We multiply the cost value by the quantity of imported products.

c. To the total cost we add the acceptable profit, by applying the lowest possible margin in each year.

2- For non-revalued products (when prices charged were already higher than costs plus profit, when there was no reference in the pricing statements of the parameter or when it was not possible to identify the reference in the description of the DI (#N/D)):

a. We use the unit price itself, in foreign currency, contained in the DI addition.

b. We multiply the unit price by the quantity imported.

3- We total the value of the addition, in the negotiated currency, by adding up the values of all the items (revalued by the 6th Method and not revalued).

4- We convert the total amount of the addition to the national currency, multiplying by the exchange rate in force on the day of the registration of the DI.

5- We add the values of freight and insurance in Reais.

- SAMPLE IV (pages 4666 to 4442), which served as an example and which raised the doubts that have been raised, was in fact drawn up in an erroneous manner, with the lack of some

lines, although, the values appearing as the customs value are correctly calculated, with some minor exceptions, dealt with below.

- With the purpose of correcting the mentioned mistakes, SHEET VI was created, in substitution of SHEET IV, containing, besides that information, also the demonstration of the calculation methodology of the customs value of each addition of the DI.

- That, as already anticipated above, there were minor inconsistencies in the application of the calculation methodology, which will be clarified below, in response to the third question formulated by the judging authority.

Second Question 2) Statement that explains the appropriation in the total customs value of the addition/DI (that supports the import of products submitted to valuation not valued) of the values of products not submitted to valuation, as an example mentioned above in DI no. 10/08540007, addition: 001.

- That the inaccuracy of the data on SHEET IV, already mentioned above, made the calculation of the Customs Value incomprehensible, as one of the lines was missing in relation to this addition.

- This problem is perfectly solved on SHEET VI (pages 7 and 8), since it refers to the same problem mentioned above and not to the Customs Value calculation methodology. On SHEET IV there was only one line, referring to product 2-17-1171, whose adjusted value was US$ 22,694.94. However, this addition also contains product 2-97-7791, whose adjusted value was US$ 1,321.51. It is the sum of these two values that results in US$ 24,016.44.

- That in SHEET II (pages 4064 to 4352) it was already possible to see that this addition contained two products and that both would be subject to revaluation.

Therefore, I understand that the issue of the profit margin applied has been clarified and that the decision of the DRJ does not merit any comment.

9.3 - Non-revalued items

On that point the applicant puts forward the following plea:

That there are no reasons for the inspection having failed to revalue some items whose declared prices were lower than the cost of production plus profit margins, as can be seen in DI no. 10/0887368-5, on pages 4686.

This matter was also analysed in the judgment under appeal, and it was clarified that contrary to the appellant's allegation, there was no error in the assessment.

Contrary to what the impugner alleges, there is no mistake in the non-authentication of addition 002 of DI no. 10/0887368-5, once the declared customs value (tax basis II) shown in spreadsheet VI (pages 4689), of R$ 133,757.00 is superior to what would be calculated by the 6th valuation method, of R$ 78,174.66.

Anyway, in the hypothesis that a certain addition had not been assessed, even with the ascertainment of the customs value by the application of the 6th valuation method superior to the declared one, it would be the case of making the entries related to this ascertainment, depending on the statute of limitations, and not of the annulment of the entries regularly made.

9.4 - Rate of currencies used in the conversion

The applicant claims that there was a divergence between the reasoning of the auditing authority and the reply to the request for clarification:

- That, in response to the diligence, the tax authorities answered to the first question that they used the exchange rate of the day of registration of the DI to convert the total value of the addition to the national currency.

- That this information differs from that verified in the Inspection, since it was informed that "multiplying by the exchange rate in effect on the day of registration" when, in fact, it used the date of the second business day prior to the date of registration of shipment for conversion, under the terms of article 79 of Normative Instruction 1312 of 2012.

The matter was the subject of analysis in the judgment under appeal, pp. 5209 et seq.

The inspector explains in detail how the calculations were made, and the use of conversion rates, since they were different currencies and types of imports with different purposes, consumption, application in customs regimes, etc.

Accordingly, the Inspection has applied the appropriate type of exchange rate at each time of conversion, in line with the related object and/or the applicable legislation.

9.5 - DIs with missing items

On that point the applicant claims:

- That in the analysis of spreadsheet VI, the Import Declarations are found with missing items, copies the summary DI 10/1013084-8, taken from this spreadsheet, transcribed below:

- That it can be verified that there are 04 items indicated, however, this DI has 05 items listed.

- That the inspection no longer included items in the spreadsheet without any justification. It should be noted that, even if there were no description for such items, they should be part of the spreadsheet prepared.

The judgment under appeal sets out the analysis and conclusion:

All product items of a DI addition were included in spreadsheet VI (pages 4.867/5.039). The alleged missing item 5 of DI no. 10/1013084-8, as informed by the appellant, would refer to product classified under tariff code NCM 3623.10.90 (pages 5.064). However, the NCM tariff code of products belonging to additions 001 and 003 of this DI, contained in spreadsheet VI (pages 4871) is 8708.99.90.

Therefore, such item necessarily does not belong to additions 001 and 003, listed in Chart VI, since it was declared a product with a different tariff code from the products of those additions. The non-inclusion of a DI addition not analyzed by the Inspection in spreadsheet VI does not constitute any mistake.

9.6 - Items with formula problems

Also submitted argument by the applicant in the following terms:

- We also found items with formula problems or incoherent information, as in DI 11/2369622-7.

- Which in its addition 001, presents the value of the 'cost plus profit by addition' indicated by the expression #VALUE! Thus, there is no way to specify the values involved by the inspection for the calculation of this DI.

It was verified an error in the calculation of the DI claimed in the inspection spreadsheet. However, the error did not harm the defense since it is possible to reach the correct value through the calculations of other columns of the spreadsheet:

Actually, in the fields "C + L ADDITION", "Customs Value" and "BC II DI" of spreadsheet VI, referring to the addition 001 of the DI no. 11/2369622-7 (pages 4937), there is the information "#value", which indicates that there was an error in the formula processing. However, this error does not bring any prejudice to the defense of the appellant, since such sum can be perfectly calculated from the values inserted in the spreadsheet for each of the items of the addition, as shown below.

Memória de Cálculo adição 001 da DI nº 11/2369622-7 (pages 4937):

CAMBIO" = 16.7

+ "FREIGHT R$" + "INSURANCE R$" = 30,580.80 + 1,931.00 + 57.00=

32,568.85 The customs value of R$ 32,568.85 Reais, calculated above, corresponds to the value informed in the tax assessment notice as "Taxable amount" of the II of this addition (pages 64).

Therefore, there is no error in the formulas used to reach the ascertained customs value. What existed was a mere failure in the processing of the sums of the spreadsheet only for this addition of DI, fully correctable, as demonstrated above.

9.7 - currency used for converting costs

- That the inspection used for the calculation of the recomposition of the 'parameter price', by mere liberality, the foreign currency rate used for the calculation of the 'price charged'.

- That, not considering the possibility of the Impugned having calculated the cost of the good converted by another type of currency, for example, the product "00809289 - SEH AC2000I GI620S", purchased by GKN Brasil from its related company in Slovenia (GKN Slovenija) in 2010. In the document "4b Annex 1 - Percentages Parameter Price sent to RFB in response to Intimation No. 38-2014", the Impugner informed as 'parameter price' for this paragraph the value of R$ 97.45 and with the unit cost of R$ 81, 21.

- That, however, when analyzing the recalculation made by RFB, (Plate II, which was used for the calculation of the field "VAL. PAR. CURRENCY" of spreadsheet VI), it may be noted that the tax authority used the Euro to calculate the conversion for obtaining the "parameter price" in foreign currency, however, the Impugner, when making the calculation, used the US dollar as basis for its calculation.

- That, therefore, in the conversion made by the RFB of the total addition, it was also based on the currency used in the conversion of the 'practiced price', that is, the Euro. Citing, as an example of the effect of this difference, the analysis of addition 001 of DI 10/2011421-7:

- That this fact is not restricted to the example presented above, and a similar situation can be verified in the cases transcribed in the table on pages 5.068.

Item (c) exchange rate distinction is addressed in the DRJ ruling, where the response to the subpoena is reproduced:

The exchange rates used for converting production costs into reais (R$) were the same used for converting weighted average prices. Below is a statement of the average rates for each year and the rates used by GKN.

In the fiscal report it states:

That the exchange rates used to convert production costs to BRL were the same as those used to convert weighted average prices and are those shown in the table below: (Fls. 4,599)

For the purposes of this tax procedure, the adequacy in the use of the correct exchange rate is no longer relevant insofar as the values that will serve as comparison for both the demonstration of the affectation of the prices practiced, as well as the customs valuation will be the values in foreign currency and for such, we will use the values declared in the DIs and the values of the prices parameters reconverted to the original currency. (fls. 4618)

And again the DRJ's conclusion should be followed "I have that the Inspection applied the appropriate kind of exchange rate at each moment of conversion, in line with the related object and/or the applicable legislation".

10 - Inapplicability of the fine

He understands that the assessment notice was issued in order to require amounts related to customs valuation, but the tax work was performed based on information on transfer price, and the valuation method should be the 1st method, and if the 1st method was not applied, all other methods should have been exhausted before the application of the 6th method. Therefore, the two fines should not be applied, that of 75% on the ascertained difference of the taxes and that of 1% for inaccurate statement.

It also considers the fine to be confiscatory.

The allegations as to the confiscatory nature of the fines should not be accepted, since this has already been summarized by the CARF:

CARF Precedent No. 2: The CARF does not have jurisdiction to rule on the unconstitutionality of a tax law.

The merit of the assessment has already been exhaustively discussed and the issue regarding the correct application of the 6th valuation method has been overcome, as well as the possibility of using transfer pricing data.

Both fines are provided for by law, being the ex-officio fine of 75% on the ascertained differences of II, PIS and Cofins, applied in the assessment of these taxes, legally based on article 44, item I, of Law 9430/1996; and the one related to IPI, on article 80 of Law no. 4.502/64, item II, altered by article 13 of Law no. 11.488, of June 15, 2007. On its turn, the isolated fine of 1% over the customs value due to inaccurate information is provided in art. 711 of Decree no. 6.759/2009, based on Article 69 of law 10.833/2003.

The tax authority cannot evade complying with the legal command, due to the principle of binding its acts, under penalty of functional liability, article 142 CTN, therefore the application of the fines to the case at hand is correct.

11 - burden of proof.

The applicant repeats the same arguments put forward in its challenge, without innovating in its arguments:

That, as occurs in the judicial proceeding, in the administrative scope, the decisions handed down thereon must follow the provisions of article 59, items LIV and LV, of the Federal Constitution, referring to the adoption of due process of law and ample defense. It is extracted from these principles that, in order to subject any taxpayer to the assessment of a tax institution, there is the duty that any decision be conveyed to sufficient evidentiary materiality for the imposition of any penalty.

- In the present tax assessment notice, it is clear that there is a total lack of evidence for any attribution of liability attributed to the Impugner, arising from mere presumption. It should also be pointed out that it is not lawful for the tax authorities to presume that the Impugned Company's transactions were mistaken, since evidence is required for their constitution.

- That in these records, the Inspection based itself solely and exclusively on its understanding and interpretation of what had occurred, affirming that the prices practiced were influenced by the binding, in addition to stating that the prices were not sufficient to cover the production costs plus a reasonable profit margin, however, it failed to prove what was alleged.

The matter has already been pacified and decided in the appealed appellate decision, which I reproduce and apply as authorized by RICARF art. 62:

The impugner claims that this assessment suffers from a total lack of evidence for any attribution of liability attributed to the Impugner, arising from mere presumption.

However, I disagree with the appellant, since the Tax Authorities have demonstrated the influence of the connection between importer and foreign supplier in the prices of imports and the consequences, ruling out the first method of valuation and applying the successive methods of determining the price of imported goods, through vast supporting documentation made available by the appellant itself, as explained in the previous items of this Vote.

Evidence is differentiated into direct and indirect. Direct evidence is that which is destined to prove the very object of the investigation, whereas the indirect or indiciary evidence is that which, by means of the proof of secondary, apt and sufficient facts, induces the knowledge of another fact not known directly. The gathering of coherent, harmonious and convergent indicative elements form the so-called evidential set, of which each element may be evaluated separately and/or as a whole, for the formation of the judgment.

It is worth mentioning here that indirect or circumstantial evidence used by the Tax Authorities is admitted in all branches of law, as well as in tax administrative law.

Therefore, there is no doubt as to the possibility of using circumstantial evidence to substantiate the facts claimed by the prosecution or defense in the tax administrative proceeding. In this sense, I point out the case law of Aliomar Baleeiro, in

Ascertainment period: 11/11/2000 to 31/12/2000

IPI. NOTICE OF INFRACTION. ERROR IN THE IDENTIFICATION OF THE TAX DEBTOR. NULLITY DUE TO MATERIAL DEFECT.

The error in the subsumption of the fact to the personal criterion of the tax base rule, resulting from the identification of the parent establishment instead of the branch establishment as the taxable person of the tax liability, which caused the annulment of the assessment subject matter of the dispute, constitutes a material defect.

Special Appeal of the Prosecutor denied." (Case No. 13629.001488/2005-70; Judgment No. 9303-005.462; Rapporteur Councilor Charles Mayer de Castro Souza; sitting of 26/07/2017)

Due to the foregoing, I hereby partially grant the Voluntary Appeal filed in order to cancel the portion of the IPI tax assessment notice related to the branches.

(document digitally signed)

Leonardo Vinicius Toledo de Andrade

Declaration of Vote

Councillor Laércio Cruz Uliana Junior.

With apologies for the style, I disagree with the rapporteur's vote and I shall explain.

The dispute is held before the infraction notice due to the customs valuation, the inspection understood that the 6th (sixth) valuation method that must be adopted.

The taxpayer claims, in sum, that the successive methods of the AVA/GATT were not observed to attribute the customs valuation, and further, that the inspection failed to observe the similar ones to ascertain the customs value, as well as unduly used the transfer price mechanism for customs valuation.

1. DA APPLICABILITY OF AVA/GATT ON CUSTOMS VALUATION

It is certain that the AVA/GATT in its Article VII, established the method of customs valuation, being that the Agreement for Implementation of Article VII of the GATT, is comprised of: General Introduction and guiding principles, in this sense:

"GATT Customs Valuation Agreement" - AVA/GATT, is composed of a General Introduction, a preamble, four parts and three annexes. In the General Introduction and Preamble can be found the 'principles' that guide the agreement: the primacy of the transaction value, uniformity, accuracy, fairness, neutrality, the prohibition of the use of arbitrary or fictitious values, simplicity, harmony with commercial practices, non-discrimination between sources of supply and the prohibition of the use of valuation to combat 'dumping'. ¹

The Agreement was implemented in Brazil by the Legislative Decree no. 30/94 and, subsequently, by Decree no. 1.355/94, still, the subject being treated by IN/SRF no. 327/2003, thus for customs valuation there are 6 (six) methods, that its applicability occurs in a successive way since the Customs demonstrates the impossibility of applying one of the methods, being them:

1st method	Transaction value	Article 1 of the AVA/GATT
2nd method	Value of transaction value of identical goods	Article 2 of the AVA/GATT
3rd method	Transaction value of similar goods	Article 3 of the AVA/GATT
4th method	Resale value method or deductive value method	Article 5 of the AVA/GATT
5th method	Product cost or computed value method	Article 6 of the AVA/GATT
6th method	Method of last resort or reasonable value method (arbitration/ fall-back)	Article 7 of the AVA/GATT

In this sense, the general introduction to the "AGREEMENT ON THE IMPLEMENTATION OF ARTICLE VII OF THE GENERAL AGREEMENT ON TARIFFS AND TRADE 1994" states :

AGREEMENT ON IMPLEMENTATION OF ARTICLE VII OF THE GENERAL AGREEMENT ON TARIFFS AND TRADE 1994

GENERAL INTRODUCTION

1. The primary basis for customs valuation under this Agreement is the transaction value, as defined in Article 1. Article 1 is to be considered in conjunction with Article 8, which provides, inter alia, for adjustments to the price actually paid or payable in cases where certain elements, considered to form part of the value for customs purposes, are for the account of the buyer but are not included

¹ TREVISAN, Rosaldo. THE INTERNATIONALIZATION OF THE IMPORT TAX DISCIPLINE: CONTOURS FOR AN INTERNATIONAL REGULATION OF THE INCIDENCE. Dourato's Thesis. UFPR.

2016. https://acervodigital.ufpr.br/bitstream/handle/1884/44050/R%20-%20T%20-

%20ROSALDO%20TREVISAN.pdf?sequence=3

the price actually paid or payable for the imported goods. Article 8 also provides for the inclusion in the transaction value of certain benefits provided by the buyer to the seller in the form of goods or services and not in the form of cash. Articles 2 to 7 set out methods for determining the customs value where this cannot be determined under the provisions of Article 1.

2. Where the customs value cannot be determined in accordance with the provisions of Article 1, there should normally be a consultation process between the customs administration and the importer with a view to establishing a basis for valuation in accordance with Article 2 or 3. It may be, for example, that the importer has information on the customs value of identical or similar imported goods and that the customs administration does not have this information readily available at the place of importation. It is also possible that the customs administration has information on the customs value of identical or similar imported goods and the importer does not have immediate access to this information. Consultations between the two parties will enable information to be exchanged, subject to business confidentiality constraints, to determine an appropriate basis for valuation for customs purposes.

3. Articles 5 and 6 provide two bases for determining customs value where this cannot be determined on the basis of the transaction value of the imported goods or of identical or similar imported goods. By the provisions of paragraph 1 of Article 5, the customs value is determined on the basis of the price at which the goods are sold, in the same condition as they are imported, to a buyer not related to the seller in the country of importation. The importer also has the right, if he so requests, to have goods, which are subject to processing after importation, valued on the basis of Article 5. Under the provisions of Article 6, the customs value is determined on the basis of the computed value. Both methods present certain difficulties and therefore the importer has the right, based on the provisions of Article 4, to choose the order of application of the two methods.

4. Article 7 sets out how to determine the customs value in cases where it cannot be determined in accordance with any of the previous Articles. ²

Thus, it was established that for successive application of a customs valuation method, Customs cannot simply refuse a previous method that departs from normal standards in that regard:

Only if the conditions for the application of the first method are not met, one proceeds to the second method. Thus, for example, Customs cannot exceed the first method, rejecting the transaction value under the pretext that it deviates from normal standards or indicative values/parameters/criteria.

(...)

It is clear that the use of the transaction value of the imported goods is only prevented when it may be affected by the circumstances described in the AVA/GATT. And it is the "affectation", and not the circumstance itself, that prevents the use of the first method. See, for example, that the simple fact that the sale is between related parties does not hinder, by itself, the acceptance of the transaction value, as long as the relation has not influenced the price, as clarified in Article 1, 2, of the agreement, and that it is still necessary to harmonize the provisions of the AVA/GATT with the discipline of "transfer pricing". ³

² AGREEMENT ON IMPLEMENTATION OF ARTICLE VII OF THE GENERAL AGREEMENT ON TARIFFS AND TRADE 1994

http://siscomex.gov.br/wp-content/uploads/2021/05/OMC_Valoracao_Aduaneira.pdf

The tax authorities based their decision on the appellant's own statement that "the company does not purchase identical or similar products from non-tied suppliers" and that the foreign supplier does not export such products to other non-tied importers in Brazil.

This information is relevant in relation to imports involving the same exporter or importer, but it is possible to have imports of identical goods, within the meaning of the GATT, with different persons.

This is why the inspectors insisted on asking the importer if there were other manufacturers of identical (or even similar) products. The company replied that there are products manufactured by its competitors that fulfil the same technical function, but that it is not possible to consider them identical or similar, as each company uses its own technology for its products, so that they can be applied specifically for each client.

And, finally, the inspection informs that it consulted the Brazilian Integrated Foreign Trade System (SISCOMEX) and did not find goods with a similar description, making it impossible to apply the second method.

And in relation to the third method (similar goods fls. 4634/4635), the scenario is repeated.

It happens that the company, in the contentious, post-surveillance phase, starts to sustain that there are imports of identical/similar goods (including some examples, for which it is not possible to attest if the time of the import is the same or approximate, if the origin is from the same exporting country, or even if there was an effective verification of the customs value).

In order to reach the material truth, I understand that this information must be checked, as at the time of the inspection the company itself denied knowledge of the existence of identical or similar imports, which it now seems to refute in its defence.

For such, the inspection must conclusively detail, if necessary, with spreadsheets extracted from the RFB database, preserving the confidentiality of the importers' names, the existence (or not) of import of identical or similar goods, observing the concepts and requirements of the AVAGATT (same or approximate time, and effective verification of the declared customs value), bringing to the records the search criteria, so that the judge may form the conviction on the effective existence or not of import of identical or similar goods to those that are object of the assessment.

As to the application of the fourth, fifth and sixth methods (pages 4635 to 4651 of the Tax Report), it is considered prudent to wait for the result of the due diligence, for a more detailed analysis, but it is possible to anticipate that there are no doubts that may give rise to an additional due diligence issue on the matter.

However, the conversion into due diligence is also used to require the RFB preparation authority, also in the name of material truth, to manifest on the calculation errors pointed out in the voluntary appeal that were not object of the due diligence performed even before the judgment on the stand.

I request that, at the end of the due diligence procedure, a detailed report be prepared on the matters covered by the due diligence, informing the appellant so that, if it so wishes, it may present its position within the statutory period of thirty days, with the case records subsequently being returned to this CARF for judgment.

In summary, for the foregoing, I vote for converting the judgment into diligence, so that the preparatory unit (i) conclusively detail, if necessary, with spreadsheets extracted with consultations to RFB database, preserving the confidentiality of the importers' names, the existence (or not) of import of identical or similar goods, observing the concepts and requirements of AVAGATT, and the defense claim reviewing, even as an example, the taxpayer's previous information on the matter; (ii) express itself on the calculation errors pointed out in the voluntary appeal that were not object of the due diligence performed even before the judgment on the bench; and (iii) produce a detailed report on the matters object of the due diligence, informing the appellant so that it may, if it so wishes, present its opinion within the statutory period, subsequently returning the case records to this CARF for judgment.

(digitally signed) Rosaldo Trevisan

The audit ruled out the applicability of the first valuation method on the basis of Article 1(1)(d) of the agreement, which reads:

Article 1

1. The customs value of imported goods shall be the transaction value, i.e. the price actually paid or payable for the goods in a sale for export to the country of importation, adjusted in accordance with the provisions of Article 8, provided that:

(d) there is no link between the buyer and the seller or, if there is, that the transaction value is acceptable for customs purposes under the provisions of paragraph 2 of this Article.

So stated in its grounds:

The importer declared in its DIs that it was bound to the exporters, but that such binding had not influenced the prices charged. This information, as we shall see below in the course of this Report, does not correspond to reality, since the evidence shows that the linkage had an effect on prices.

(...)

The obligation to inform that the binding has influenced prices, thus allowing the customs administration to establish valuation by one of the substitute methods, is on the importer, as is clear from the comment above.

As the taxpayer informed, in response to subpoenas, the prices are determined corporatively and are contained in a transfer price catalogue for the transactions with companies of the DRIVELINE Division, at least. It is clear from the answers submitted that there is no operation of commercial nature that precedes each of the imports, but this will be addressed further on in the topic dedicated to analyzing the influence of tying on prices.

The AVA/GATT itself excludes from the rule excluding the application of the first Valuation Method transactions carried out between related parties when prices are not influenced by the relationship, that is, when the prices charged are close to those that would be charged between non-linked parties.

(...)

definition. Similar goods" are those which, although not alike in all respects, possess: a) similar characteristics; and b) similar compositions enabling them: c) to perform the same functions; and d) to be commercially interchangeable. To determine whether goods are similar, one must take into consideration, among other factors, their quality, reputation and the existence of a trademark.

By reading the mentioned text, it is clear that the work of investigating the identity or similarity of goods for customs valuation purposes must take into consideration a series of elements. However, in the case at hand, it was not possible to find a single explanation or evidence in the case records as to why the tax authority understood that the products recorded in Siscomex, in the same period, under the same NCM, are not identical or similar - according to the elements described in Comment 1.1. of the Technical Committee of Customs Valuation - to those that were internalized in Brazil by the Appellant. It was for this reason that this Judgment Panel opted to lower the trial into diligence, so that the procedure for analyzing identical or similar goods could be brought to the case records.

The first filter applied by the Inspection was to take as parameter only imports submitted to the red and gray conference channels, leaving aside those that went through the green and yellow channels. This is because, in its view, it is only these conference procedures that imply in a "ratification by the customs authority. To justify such measure, the Inspection points to the Customs Valuation Agreement, which states in the 4thNote to Article 2.

In this context, providing about the selection for customs conference, Article 21 of IN 680/2006 determines that after registration, the DI shall be submitted to fiscal analysis and selected for one of the following customs conference channels:

i) Green, by which the system will register the automatic clearance of the goods;

ii) Yellow, through which the documental examination will be done, and, not being found any irregularity, the customs clearance will be done, exempting the goods verification;

iii) red, by which the goods will only be cleared after the documental examination and verification of the goods; and

iv) The customs control procedure will be applied in order to verify indications of fraud, including the declared price of the goods, as established in specific norms.

Judgment 3402-007.015 - 3ª Sejul/4ª Câmara/2ª Turma Ordinária Processo nº 10074.000322/2007-23

Such argument of the inspection does not deserve to prosper, because when not considering the green or yellow channel, it does not mean that there was no inspection of any of these products by customs. It is known nowadays that the inspection has dedicated its efforts so that the inspections occur after the customs clearance, being common the customs review of all the cleared goods in any channel.

Thus, it matters little which clearance channel took place, since we repeatedly verify by the case law of this CARF that it is accepted that a review occurs on the red, yellow, etc. channels.

he use of reasonable criteria is not in itself a valuation method, but rather a principle that should guide the procedures when it is not possible to apply the methods previously provided for. Thus, as provided in paragraph 2 of the Interpretative Note to Article 7, the valuation methods to be used in accordance with Article 7 will be those defined in Articles 1 to 6, with reasonable flexibility.

In this way, Article 7 states that reasonable criteria must be used:

1. Where the customs value of imported goods cannot be determined on the basis of the provisions of Articles 1 to 6 inclusive, that value shall be determined using reasonable criteria consistent with the general principles and provisions of this Agreement and with Article VII of GATT 1994 and on the basis of the information available in the importing country.

In this sense, there is great concern about what would be the reasonable price, however, I understand that the transfer price method is not applied, because it can serve as an indication to approximate the value, but not for customs valuation. Explains Luis Eduardo Schoueri: ⁵

1.5 Although they are related figures, the transfer pricing issue is not to be confused with that of customs valuation1615.

1.5.1 Indeed, in customs valuation, the focus is on the value of the product. Since the basis for calculating customs duties is the value of the goods, the customs valuation methods aim to find the normal price of that good. 1.5.2 In the case of transfer pricing, the research aims to find out whether one of the parties in the transaction obtained an advantage or disadvantage in the business, implying profit shifting.

(...)

The need for a tax assessment arises, which has nothing to do with an eventual gain in another transaction. The focus is not the company's gain or loss.

1.5.3.2 Under the transfer pricing approach, it will be seen that the transaction did not result in gain or loss for any of the parties, and it is therefore lawful to offset losses, without any tax assessment'.

1.5.4 It follows that there is no incompatibility between the circumstance that the customs valuation legislation achieves a certain value, which is not coincident as a result of transfer pricing.

1.5.4.1 This hypothesis is even more valid in the Brazilian case. In fact, it will be verified, in the course of this study, that the legislation on transfer pricing admits the application of several methods, being quite possible that each one may reach a different result. Under the Brazilian system, the taxpayer may use the most favorable method. This does not occur in the case of customs valuation, where there is a sequential order in the application of the methods. Although, in principle, the result of the valuation should be within the range established between the most convenient and the least convenient method to determine the transfer pricing, the legislation of the latter will take the lower or upper level of that range, which will not necessarily coincide with the result of the valuation.

⁵ SCHOUERI, Luís Eduardo. Transfer pricing in Brazilian tax law. São Paulo: Dialética, 2013

<https://schoueri.com.br/wp-content/uploads/2020/09/LES-Precos-de-transferencia-3.ed_.-2013-Livro-com- OCR.pdf>

Case No.	11080.724128/2015-21
Appeal No	Volunteer
Judgment nº	3201-009.605 - 3rd Judgment Section / 2nd Chamber / 1st Regular Class
Session of	14 December 2021
Applicant	GKN DO BRASIL LTDA
Interested Party	NATIONAL TREASURY

MINISTRY OF ECONOMICS

ADMINISTRATIVE COUNCIL OF FISCAL RESOURCES

SUBJECT: ADMINISTRATIVE TAX PROCEDURE

CONVERGING EVIDENCE. INDIRECT EVIDENCE. NO REVERSAL OF BURDEN OF PROOF.

SUBJECT: TAX ADMINISTRATION RULES

EX-OFFICIO AND ISOLATED FINES. LEGAL PROVISION. PLEA OF CONFISCATORY EFFECT. ASSESSMENT OF UNCONSTITUTIONALITY IN THE ADMINISTRATIVE INSTANCE OF JUDGMENT. DISCOURAGEMENT.

SUBJECT: IMPORT TAX (II)

CUSTOMS VALUATION. DECLASSIFICATION OF THE TRANSACTION VALUE. USE OF SUBSTITUTE METHODS OF THE CUSTOMS VALUATION AGREEMENT - AVA/GATT.

SUBJECT: TAX ON INDUSTRIALISED PRODUCTS (IPI)

IPI ASSESSMENT. AUTONOMY OF ESTABLISHMENTS.

Report

Topic 3

Topic 5

Third Item

Conclusive detailing, with spreadsheets extracted by consulting the RFB database, the existence or not of identical or similar goods.

• SHEET VII - Obscurity regarding the method used, the conclusions reached and the induction carried out.

• SHEET VIII - Obscurity regarding the method used, conclusions reached and induction carried out.

• SHEET IX - Identification of similar goods.

• Conclusion as to non-compliance with the order provided for in the AVA and consequent nullity of the AIIM3

Dissenting Vote

1 - Nullity of the entry in the name of the parent company.

2 - Nullity of the tax assessment notice for having as object customs valuation and having demanded documents related to the transfer price

3 - Inapplicability of the 1st valuation method

4 - Mandatory sequential non-observance of valuation methods

5 - Moment of ascertaining the customs value. Change in the legal criterion.

6 - Compliance with the guidelines issued by the technical committee on customs valuation

7 - Advisory Opinion 2.2 and Case Study 12.1

8 - Calculations carried out to arrive at the customs value

8.2 - Undue inclusion of imports from Uruguay

8.3 - Misleading information of parameter prices (used for the purpose of determining transfer pricing adjustments) used alternatively for the application of the 6th method

8.4 - Inclusion, in the tax assessment notice, of imports that were included as adjustments in the tax bases of the IRPJ and CSLL for the purposes of determining transfer prices (CPL method), due to the adoption of a profit margin higher than 20%

8.5 - Imposition of a profit margin higher than the 20% threshold established by the transfer pricing legislation for the application of the 6th valuation method

8.6 - Exchange rate used for the calculation of any adjustment in the customs value, in particular, the IENE

8.7 - Calculation of the customs value per DI for the purpose of drawing up the tax assessment notice

9 - Information provided by the inspectorate during the visit

9.1 - Items indicated with the expression #N/D that have been revalued

9.2 - Profit margins deemed acceptable

9.3 - Non-revalued items

9.4 - Rate of currencies used in the conversion

9.5 - DIs with missing items

9.6 - Items with formula problems

9.7 - currency used for converting costs

10 - Inapplicability of the fine

11 - burden of proof.

Winner Vote

Declaration of Vote

1. DA APPLICABILITY OF AVA/GATT ON CUSTOMS VALUATION

AGREEMENT ON IMPLEMENTATION OF ARTICLE VII OF THE GENERAL AGREEMENT ON TARIFFS AND TRADE 1994

Recognising that the basis of valuation of goods for customs purposes should be as far as possible the transaction value of the goods to be valued;

FIRST AND SECOND VALUATION METHODS

2. Customs valuation, in the concrete case

THE THIRD VALUATION METHOD

THE USE OF TRANSFER PRICING AS A CUSTOMS VALUATION MECHANISM

CONCLUSION