Brazilian tax tribunal again rules on costs included for resale price method

By Francisco Lisboa Moreira, Bichara Advogados, São Paulo

A newly released transfer pricing decision from Brazil’s Administrative Tribunal for Federal Tax Cases (CARF) has reinforced the position that freight, insurance, and customs duties should be considered when applying the resale price method.

Decision 1402003338, dated on August 14 and published November 20, states that, for purposes of maintaining equivalence between prices when determining the actual price, it is necessary to add all the costs related to freight, insurance, and customs when borne by the importer.

This is a trend in the CARF. Seventeen cases have addressed the matter in the last 12 months, and all of them have decided in favor of the tax authorities. However, it is interesting to note that none of the decisions was unanimous.

This is a trend in the CARF. Seventeen cases have addressed the matter in the last 12 months, and all of them have decided in favor of the tax authorities. However, it is interesting to note that none of the decisions was unanimous.

The inclusion of freight, insurance, and customs costs was not required in the original wording of Law 9,430/1996 but instead was added as a requirement in Normative Instruction n. 243/2002.

The tax authorities argue that, to create comparability, costs incurred by the importer that are included the cost of goods sold should be part of the actual price, to be compared with the parameter price.

Although from an economic perspective this could make sense, it seems extremely unreasonable for the tax authorities to seek comparability when not allowing any flexibility of the minimum resale profit margins.

Provisional Measure, n. 479/2009 aimed to modify the wording of Law 9,430/1996 in this sense, but it was not converted into law.

We should remember that provisional measures are instruments issued by the executive branch with power of law, but should be evaluated and converted or not into a definitive law by Congress in 60 days, renewable for another 60 days.

Law 12,715, published in 2012, determined expressly that freight, insurance, and customs costs should not be part of the actual price – but the modification did not have a retroactive effect. So, the tax authorities claim that, since the law was silent, the intention of the legislator was to allow the non-inclusion of such costs only prospectively.

The most interesting decision on the matter, Decision 9101-003415, was issued on February 6 by the Upper Chamber of the CARF (CSRF). The decision was tied, but according to the internal regulations of the administrative body, the final tie-breaker vote is always for the tax authorities.

The matter ended up causing a lot of trouble for taxpayers as they will likely lose disputes at the administrative level and be forced to appeal to the courts. Moreover, for the case to be considered in court, the debt must be guaranteed, either by means of a deposit or by another form of guarantee, which is much costlier.