You are here://The Dollar makes brazilian subsidiaries more competitive for exporting

The Dollar makes brazilian subsidiaries more competitive for exporting

The devaluation of the Real against the dollar makes it easier for exporters to comply with transfer pricing. The Brazilian subsidiaries are gaining advantage in exporting, in relation to companies within the same group in other countries.

The idea of the transfer price is to prevent the exporter to transfer part of their profits to another subsidiary abroad. The standard requires that the exporter makes an addition for calculating the income tax when the price at which the company sells abroad is lower than the price used in-country, as a parameter of the Brazilian Tax Office.

One of the forms provided in the legislation to get the price parameter is adding to the cost of producing a profit margin of 15%. This price is calculated in local currency.

When the Real appreciates, it is more difficult to lower the export price to compete with another subsidiary abroad and comply with the tax rules of transfer pricing. The value to add to the Income Tax is very high, increasing the tax burden of the operation and often turning down the operation.

With the devaluation of the national currency, the opposite happens. Every dollar charged by exports pays more real. The Brazilian subsidiary can lower the price – and therefore be more competitive – and get very close to the profit margin of 15% stipulated by the Tax Office.

The devaluation against the real, while increasing profitability, allow the Brazilian exporter flexibility to lower its price and compete with foreign companies or subsidiaries in other countries without having to worry about the negative effects of tax legislation.

2017-09-18T13:19:49+00:00 15/04/2015|Latest news|