Fiscal year 2001 2002 2003 3 Years Avg. 900 1.100 1,167 Export revenue R$ 45 Export net income before taxes Rs 6.66 3 4.89 Rate At this point, it is important to emphasize that the ruling does not mention an average of the three years' results. The method mentioned above produces a bigger average rate than if the three years were averaged together. Instead of 4.89 percent, it would grow to 5. 22 percent, crossing the 5 percent safe harbor threshold. Controversy remains over how to stipulate the export net profit before taxes, since the brazilian tax authority has not explained the calculation method clearly. In fact, four interpretations may arise with the result that the taxpayer actually has the export net profit o of the entire exported items to all of the related parties o calculated for each item sold to all of the related parties 9 for all of the items sold to each related party separately; and o for each item and for each related party Since there is no clear position from the tax authorities on this, the taxpayer can get lost and incur some risks Opening New Markets Another situation in which Brazilian rulings offer special transfer pricing conditions is when exports are intend to conquer new markets abroad. In this sense, exports to related parties may have average prices under 90 percent of those average prices in Brazil. To apply for this exception o the considered export items may not yet have been commercialized in the destination country, neither by the resident export company nor by any other related party, resident or not e products must be resold to consumers under a price lower than the price for any equivalent product in the destination country: o taxpayer must demonstrate that the nonresident related party is not going to realize a profit from the transaction moreover, if the resident company experiences losses, the taxpayer must stipulate a time limit for ending losses and moving into a profit mode; and o an"export plan"must be previously approved by the tax authoritiesFiscal Year 2001 2002 2003 3 Years Avrg. Export revenue R$ 900 1,500 1,100 1,167 Export net income before taxes R$ 60 45 66 57 Rate % 6.66 3 6 4.89 At this point, it is important to emphasize that the ruling does not mention an average of the three years' results. The method mentioned above produces a bigger average rate than if the three years were averaged together. Instead of 4.89 percent, it would grow to 5.22 percent, crossing the 5 percent safe harbor threshold. Controversy remains over how to stipulate the export net profit before taxes, since the Brazilian tax authority has not explained the calculation method clearly. In fact, four interpretations may arise with the result that the taxpayer actually has the export net profit: of the entire exported items to all of the related parties; calculated for each item sold to all of the related parties; for all of the items sold to each related party separately; and for each item and for each related party. Since there is no clear position from the tax authorities on this, the taxpayer can get lost and incur some risks. Opening New Markets Another situation in which Brazilian rulings offer special transfer pricing conditions is when exports are intend to conquer new markets abroad. In this sense, exports to related parties may have average prices under 90 percent of those average prices in Brazil.31 To apply for this exception: the considered export items may not yet have been commercialized in the destination country, neither by the resident export company nor by any other related party, resident or not; products must be resold to consumers under a price lower than the price for any equivalent product in the destination country; taxpayer must demonstrate that the nonresident related party is not going to realize a profit from the transaction. Moreover, if the resident company experiences losses, the taxpayer must stipulate a time limit for ending losses and moving into a profit mode; and an "export plan" must be previously approved by the tax authorities