Originally published in the June 21 edition of World Tax Daily (Copyrights Tax Analysts)
An act from the president of Brazil’s Congress has declared that Provisional Measure 478/2009, which created a new transfer pricing method effective January 1, expired on June 1. Consequently, taxpayers can no longer use the sales price less profit method (preço de venda menos lucro, or PVL) created by the measure to replace the resale price less profits methods (preço de revenda menos lucro, or PRL).
Brazil’s official gazette of June 15 published Declaratory Act 18/2010, which declares that Provisional Measure 478/2009 expired on June 1 because it has not been timely approved by Congress. Provisional Measure 478/2009 replaced the PRL methods (resale and production) with the PVL method. The PVL method was supposed to apply to import transactions carried out as of January 1. Another important change in Provisional Measure 478/2009 empowered the Ministry of Finance to establish different profit margins based on business sector for transfer pricing purposes. That delegation has also expired.
The issue now is determining the consequences of the expiration. Under Brazil’s constitutional system, a provisional measure that expires without formal approval is considered to have never been in existence. The Federal Constitution therefore requires Congress to issue a decree establishing the procedures necessary for those who followed an expired provisional measure while it was in place. However, Congress has historically failed to issue similar decrees, leaving citizens and taxpayers uncertain of the consequences of their actions during the effective period of an expired provisional measure.
In practical terms, the expiration of Provisional Measure 478/2009 means that for legal purposes the PVL method never existed and the two PRL methods were never revoked. Thus, taxpayers should be able to resume using the PRL methods for 2010.
The Federal Revenue Department (FRD) will likely soon issue a regulation establishing the procedures for taxpayers who followed the measure. Although it wouldn’t have the power of the congressional decree, an FRD regulation would give taxpayers certainty of the tax implications arising from the measure’s expiration.
David Roberto R. Soares da Silva