By regulating the method of calculating transfer prices provided for in article 18, item II, of Law 9,430/1996, did Normative Instruction 243/2002 of the National Treasury exceed limits and increase the tax burden on companies unduly?
Finance Methodology was in force from 2002 to 2012 and is discussed by multinationals
This doubt generated divergence among the Public Law collegiates of the Superior Court of Justice. For the 1st Panel, the regulations made by the Treasury are illegal and should not prevail. For the 2nd Panel, however, it is legitimate and prevents tax evasion by multinationals.
The precedent of the 1st Panel was established in 2022. The 2nd Panel analyzed the controversy for the first time in October 2023, and the ruling was only published on the 15th.
Transfer Pricing
The controversy is old, as the contested instruction was in force from 2002 to 2012. It deals with the calculation of transfer prices, an instrument applied to the sale of goods or products between multinationals belonging to the same economic group.
In these transactions, there is complete freedom to establish the amount charged, which may or may not coincide with what is usually practiced in the market.
In practice, it is a way of transferring profits from one jurisdiction to another, always seeking as a destination the location with the lowest tax base.
To avoid this tax avoidance, countries have enacted laws to fix transfer prices, the effect of which changes the identification of the IRPJ and CSLL calculation basis. In Brazil, this provision is in article 18 of Law 9,430/1996.
There are three ways to set the transfer price. The cases considered deal with the provisions of section II of the standard, which presents the Resale Price Less Profit (PLR-60) method.
In the wording of article 18 given by Law 9,959/2000, this calculation would be made by the arithmetic average of the resale prices of goods or rights, reduced by a series of factors, listed in the following items and paragraphs.
When regulating the law, IN 243/2002 changed the formula created to arrive at the transfer price. The consequence was an increase in the calculation basis for charging IRPJ and CSLL on these amounts.
AREsp 511.736 — 1st Class
For the 1st Panel of the STJ, this regulation is illegal, as the infralegal act cannot create criteria that are completely foreign to the regulated law, especially to increase the tax burden.
Rapporteur of the matter, minister Gurgel de Faria incorporated the position offered in a vote by minister Benedito Gonçalves to understand that the formula created by the Treasury is indeed the most appropriate, but could not be done in violation of ordinary law.
“I believe that the solution to the issue of the possible failure of the primary normative command should go through the path of the law and not through the administrator’s desire to innovate, however good it may be.”
This path was, in fact, taken with the approval of Law 12,715/2012. Currently, it defines the formula for calculating transfer prices. And, based on this update, the Treasury published Normative Instruction 1,312/2012, replacing the previous standard.
REsp 1,787,614 — 2nd Class
As for the 2nd Panel of the STJ, there is no illegality to be corrected. The collegiate’s position is that the mere comparison of the wording of article 18 of Law 9,430/1996 with that of article 12 of IN 243/2002 does not serve to resolve the issue.
This is because the function of a normative instruction is not the mere repetition of the text of the law, but its regulation, clarifying its practical function.
Rapporteur, Minister Francisco Falcão pointed out that the instruction only gave the correct path to fulfill the objective of the law: identifying the price of the good, service or right negotiated between the related parties.
In his analysis, if the criterion defended by the taxpayer were adopted — that the calculation be based on the net resale value of the resold good, disregarding the proportionality of the imported input in the composition of the final product —, the final price would be out of line with reality.
Instead, it is necessary to determine the net resale value (discounting expenses listed by the standard), consider the portion corresponding to the share of the final product and discount the profit margin to reach the input price.
For Minister Falcão, the taxpayer’s position subverts the transfer pricing control system by allowing the increase in IRPJ and CSLL deductible amounts and, consequently, the export of profits abroad.
“The election of the taxpayer’s method would result in granting ‘carte blanche’ for systematic tax evasion planning, as the company would know, in advance, the maximum limit of the value of the input that could be released, which the election of the taxpayer’s method would result in granting ‘carte blanche’ for systematic planning of tax evasion, as the company would know, in advance, the maximum limit of the value of the input that could be released”, he explained.
In a unanimous vote, Minister Mauro Campbell accompanied the rapporteur and highlighted that the law requires that the cost (input) and the price (output) have a logical correspondence.
“If the exit price of a good for a related company is disproportionately higher than the entry price of that same good, there is profit being sent to the related company abroad in a camouflaged way within the exit price.”
Click here to read the 1st Panel ruling
AREsp 511.736
Click here to read the 2nd Panel ruling
REsp 1,787,614
Tags: STJ disagrees Treasurys methodology calculating transfer prices
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