Law 12.766, issued on December 28 2012, provided significant changes to Brazilian transfer pricing rules for interest bearing transactions. The calculation of the maximum amount of deductible expenses and minimal revenue arising from interest subject to transfer pricing regulations should observe the following:
· In case of transactions in US dollars (USD) at a fixed rate, the parameter rate is the market rate of the sovereign bonds issued by the Brazilian government on the external market, indexed in USD;
· In case of transactions in Brazilian real (BRL) at a fixed rate, the parameter rate is the market rate of the sovereign bonds issued by the Brazilian government on the external market, indexed in BRL;
· In case of transactions concluded abroad in BRL at a floating rate, the Ministry of Finance will determine the parameter rate; and for all other cases, the parameter rate is the London Interbank Offered Rate (LIBOR).
The subsequent obtained parameter rate can still be increased by an annual spread to be established by the Ministry of Finance based on a market average. Ordinance 427/2013 now provides the annual spread depending on the Brazilian taxpayer’s position on the loan.
· Brazilian entity as the borrower – Starting on January 1 2013, the (statutory) spread should be no more than to 3.5%.
· Brazilian entity as the lender – From January 1 2013 to August 1 2013, no interest rate spread is required on the transaction. Starting on August 2 2013, the spread is required to be no less than 2.5%.
Werner Stuffer, Partner, werner.stuffer@br.ey.com, Tel. +55 11 2573 3902
Gary Peters, Manager, gary.peters@br.ey.com; Tel. + 55 11 2573 5300