Originally published in the January 4 edition of World Tax Daily (Copyrights Tax Analysts – www.taxanalysts.com)
Brazil’s Ministry of Finance has authorized Brazilian companies to adjust their export income upward by 28 percent to compensate for the decrease in value of the U.S. dollar against the Brazilian real during calendar year 2007. The Finance Ministry approved similar adjustments of 29 percent and 35.11 percent in 2006 and 2005, respectively.
The adjustment is intended to prevent distortion in transfer pricing reporting. Brazilian companies exporting products to foreign affiliates were earning less income in Brazilian currency because of the decrease in value of the U.S. dollar against the Brazilian real, even though the Brazilian companies’ export income in foreign currency was equal to — or even higher than — that of previous years.
In the five years that President Luiz Inácio Lula da Silva has been in office (January 2003 through December 2007), the devaluation of the U.S. dollar against the real has been significant, dropping from $3.53 per BRL 1 on January 1, 2003, to $1.77 per BRL 1 on December 31, 2007. In 2007 alone, the U.S. dollar dropped 16.9 percent (from $2.13 per BRL 1 to $1.77 per BRL 1).
The new adjustment applies only to calendar year 2007; taxpayers are not allowed to extend it to previous years.
The adjustment was authorized by Finance Ministry Ordinance (Portaria) 329/2007 and was published in Brazil’s official gazette on December 28, 2007. On the same day, the Federal Revenue Department issued Normative Instruction 801/2007, providing additional regulations on the income adjustment.
David Roberto R. Soares da Silva