The ordinance No. 427/2013: Definition of Spread Margins for the purpose of Brazilian Transfer Pricing Rules applicable to Interest
August 6, 2013
On August 2, 2013, the Ordinance No. 427, of July 30, 2013 (“Ordinance No. 427/2013”) was published in the Brazilian Official Gazette, whereby the Minister of Treasury established spread margins for the purpose of defining the limits of deductibility and the recognition of interest income in transactions with “related parties” or individuals or legal entities residents or domiciled in Tax Favorable Jurisdictions (“TFJ”) or under a Privileged Tax Regime (“PTR”).
In this context, the Minister of Treasury established that Spread Margins to be added to interest rates provided in Article 22, Section 6 of Law No. 9,430 from December 27, 1996 will be:
(i) for the purpose of deductibility of financial expenses, in determining the tax basis of Corporate Income Tax (“IRPJ”) and the Social Contribution on Net Profits (“CSLL”): 3.5% to loan contracts executed as of January 01, 2013; and
(ii) for the recognition of the minimum value of financial revenue, in determining the tax basis of IRPJ and CSLL, irrespective of the transaction: (a) 2.5% to loan contracts executed (or re-priced/renewed) as of August 03, 2013; (b) 0% to loan contracts executed (or re-priced/renewed) between January 01, 2013 and August 02, 2013.
A note-worthy point regarding the reference made by the Ordinance No. 427/2013, in Article 2, about the application of the Spread Margin for the purpose of recognition of minimum value of financial revenue irrespective of the transaction: this reference seems to follow the line presented by the Brazilian Federal Revenue in the Normative Instruction No. 1,312 of December 28, 2012, that, in its Article 38-A, Section 7, extended the Transfer Pricing Rules to the so-defined “financial transactions”, i.e., those transactions arising from contract agreements, including transactions for application of capital resources and capitalization of credit facility entered into with individuals or legal entities residents or domiciled abroad, whose inflow or outflow of funds has been conducted in foreign currency or through international transfers in national currency. This seems to be an enlargement of the rule established in Law No 9,340/1996 that determines the application of Transfer Pricing Rules to Interest Rates in loan transactions.
The Ordinance No. 427/2013 comes into effect on the date of its publication (i.e. August 02, 2013).
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