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The PECEX Method
Comparison between Brazil and
OECD approach
Main aspects of Brazilian TP rules as compared with OCDE
Guidelines:
PwC
Sixth Method
Few countries adopt the Sixth Method for
commodities, including Argentina, Uruguay,
Dominican Republic, El Salvador, Guatemala,
Chile, Panama, Peru, Colombia and India.
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Methods applicable to Exports
Methods applicable to exports of goods, services or rights
•
Export Sales Price Method (“PVEx”)
•
Resale Price Methods (“PVA or PVV”)
•
-
Wholesale - margin of 15%
-
Retail – margin of 30%
•
Prices of commodities subject to quote on
exports (“PECEX”)
-
•
Mandatory method for commodities
Safe Harbors – not applicable to exports of
commodities.
Purchase or Production Cost Plus Taxes and
Profit Method (“CAP”)
-
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Margin of 15%
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PECEX – Brazilian Regulation
Timeline
IN 1.458 (March, 2014)
- Adjustments related to tax at destination port
IN 1.431 (December, 2013)
- Adjustments related to the destination port
IN 1.395 (September, 2013)
- Commodities definition
- Inclusion of other possible adjustments (payment terms, negotiated
quantity, climate influences, intermediation costs, packaging, fright and
insurance)
- Inclusion of concept of regional reference prices
IN 1.312 (December, 2012)
- PECEX regulation;
- Divergence margin 3%;
- Appendix I, II and III
Law 12.715 - conversion of MP into Law (September, 2012)
- PECEX Method optional for FY 2012 and mandatory as of FY 2013
Provisional Measure (MP) 563 (April, 2012)
- Introduction of PECEX Method on Brazilian TP rules
Law 9.430 (December, 1996)
Introduction of Brazilian TP Rules
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Brazilian Transfer Pricing rules
for Commodities
Commodities – PECEX Method
•
Exports of commodities, quoted in commodities exchange market, must be tested through the use of
the PECEX
•
Based on this method the taxpayer shall compare:
Transactions value X Daily average quote for the product
•
The quotes should be adjusted based on the average market premium, which comprise:
-
market valuation
-
variations in quality, characteristics and substance content.
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Brazilian Transfer Pricing rules
for Commodities
Commodities – PECEX Method
Besides the market premium, the commodity value can be adjusted by:
differences between the value supported by the seller
X
the standard specifications of the commodity exchange market
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Brazilian Transfer Pricing rules
for Commodities
Commodities – PECEX Method
Authorized adjustments for business conditions:
a) terms of payment
b) negotiated quantity
c) climate influences in the characteristics of the exported good
d) intermediation costs on purchase and sale transactions carried out by unrelated entities
e) packaging
f) freight and insurance and
g) cost of landing at the port, internal transport, storage and customs clearance including taxes and
import all the target market commodity
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Brazilian Transfer Pricing rules
for Commodities
Commodities – PECEX Method
In the absence of quote in the exchange market, the taxpayer may choose to test
the transactions using information obtained from independent sources,
provided by internationally recognized institutes involved in researches of
specific sectors
•
•
Normative Instruction 1.312/12 contains Attachments listing:
-
products that should be considered commodities for purposes of the
method (not exhaustive)
-
the commodities exchanges markets and
-
the publications that can be used to apply the methods
The divergence margin accepted for commodities is 3%.
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PECEX Methodology - Summary
The PECEX Method is a
prescriptive method that shall be
calculated based on a quoted
exchange price, with the ability to
make two types of adjustment:
market premium and business
conditions and include a
divergence margin.
Parameter Price
Calculation
Product Quote
Detail
Example / Documentation
Adjustments to account for differences between
the quoted exchange price and information
obtained from independen sources.
e.g. Platts or Metal Bulletin
Difference between commodities
exchange market quotes and independent
source publication
Calculation based on publication
Calculation based on publication
Calculation based on publication
Market Premium
(+/-) Market valuation
(+/-) Quality
(+/-) Characteristics of the product
(+/-) Substance Content
(+/-) Terms of payment
Discounts based on contracts with third
parties or studies based on third party
contracts
(+/-) Negotiated quantity
Business Conditions
(+/-) Climate influences in the characteristics
(+/-) Intermediation costs
(+/-) Packaging
Contracts with third parties or Baltic Dry
Index (BDI)
(+/-) Freight and insurance
(+/-) Costs of landing
Minimum taxable price
(parameter price)
Divergence Margin
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Minimum taxable export price
3%
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PECEX Method Data Sources
In practical terms there is effectively a hierarchy of
data sources to determine the reference price:
• An index price is always first;
• A reported price (e.g. Platts, Metal Bulletin) next;
• The company’s own data on prices; and
• Independent third party transactional data.
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PECEX Method Data Sources
A company’s own third party data can however Independent transactional data may be used to
provide evidence of price adjustments
support internal data on:
for example:
• costs of intermediation; and
• Quality premiums/discounts on specific
• Independent third party transactional data.
products;
• Adjustments based on quantity or risk
profile
• The cost of intermediation, where sales are
to a related party marketer/trader.
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