Brazil has published Normative Instruction No. 1870 of 29 January 2019, which amends regulations for various aspects of Brazil's transfer pricing regime provided under Normative Instruction No. 1312/2012. One of the main aspects is the timing for the calculation of benchmark prices when using certain transfer pricing methods. This includes:

• When using the comparable independent (uncontrolled) price method (PIC), production cost plus profit method (CPL), or import price quotation method (PCI), the benchmark prices must be calculated in the same calendar year the good, service, or right is imported, although any adjustments are made at the time of consumption; and
• When using the resale price less profit method (PRL), the benchmark prices must be calculated at the time of consumption, considering the cost of initial inventory and purchases during the year less the cost of closing inventory (COGS).

In relation to the timing of benchmark prices, it is provided that for interest on net equity (JCP), where the PIC, CPL, or PCI methods are used, the adjustment impact on net equity will be in the year in which the import transaction took place, and where the PRL method is used, the adjustment impact will be in the year of consumption.

Other aspects include:

• When applying the PIC method, it is provided that transactions between third parties can be used in the PIC analysis even if the buyer or seller in the transaction is related to the Brazilian entity;
• When applying the PRL method, it is provided that the benchmark prices must be calculated based on resale transactions carried out in the domestic market (i.e., exports should be excluded from the resale transaction pool), and that eventual price adjustments for international freight and insurance are not excluded from the COGS for the purpose of the gross profitability analysis;
• With respect to the application of the PCI and export price quotation (PECEX) methods, it is provided that the commodities for which the methods apply are those included in Annex I of Normative Instruction No. 1312/2012 that have public prices on exchanges listed in Annex II or that have public prices provided by recognized research institutions in Annex III (PCI and PECEX may no longer be applied for commodities traded on exchanges if not listed in Annex I);
• New rules are provided for determining if the 5% safe harbor margin is met (3% margin for commodities where the PCI and PCEX methods are used).

Normative Instruction No. 1870 entered into force on 30 January 2019.