The CARF (Conselho Administrativo de Recursos Fiscais – Administrative Council of Fiscal Resources) of Brazil has recently confirmed the rate established by the Receita Federal (Federal Revenue) to calculate transfer prices in international transactions among related companies.
CARF Transfer Pricing Ruling
The 2nd Chamber of the 1st Chamber of the 1st Section of the CARF validated the use of the ROACE (Return on Average Capital Employed) index as a parameter for adjusting prices in platform chartering contracts. In a casting vote, the group confirmed a tax settlement of R$ 437 million against Shell, considering that the company incorrectly applied the Comparative Uncontrolled Price (CUP) method to determine Transfer Pricing with companies of the same group abroad. The inspection indicated that Shell compared the daily charter rate and CAPEX of its contracts with independent parties but omitted key factors such as contractual terms and rates of return (ROACE). Shell argued that the CUP method was valid under the legislation and that the Federal Treasury did not adequately consider market realities. In the vote, the rapporteur considered the ROACE suitable for adjusting prices, reflecting the expected rate of return in the contracts. The board members who voted to cancel the assessment were defeated. The ruling was published on November 13, and the decision was issued on October 9, 2024.
Implications for Multinational Companies
This ruling significantly affects multinationals operating in Brazil, as it reaffirms the need to strictly comply with Transfer Pricing regulations established by the Receita Federal. Companies must ensure that their international-related party transactions are at the approved rates and methodologies to avoid penalties and tax adjustments.
Transfer Pricing Compliance Significance
Transfer Pricing is crucial to ensure tax fairness in international transactions. The CARF confirmation of the rate underlines the importance of companies maintaining accurate and transparent documentation of their transactions, aligning with Brazilian tax regulations and the OECD guidelines.
Specialized Transfer Pricing Advisory
Given the complexity of the regulations and the recent CARF ruling, companies should seek specialized advice to ensure proper compliance with Transfer Pricing regulations in Brazil.
Frequent Questions
- What is Transfer Pricing? It consists of methods for calculating the tax base in international related-party transactions designed to avoid mispricing and ensure tax fairness.
- What does the CARF’s ruling on the Receita Federal rate imply? The CARF has endorsed the methodology and rates established by the Receita Federal for calculating transfer prices, reinforcing the need for companies to comply with these regulations in their international transactions.
- What are the effects of this ruling on multinational companies in Brazil? Companies must ensure their related party transactions are at the rates and methodologies approved by the Receita Federal to avoid penalties and tax adjustments.
For further information and customized advice on the effects of this ruling on your company, please do not hesitate to contact us. At TPC Group, we are committed to providing the necessary support to ensure tax compliance and optimize your international transactions.
