New Brazilian Transfer Pricing Guidelines

The Provisional Measure (PM) No. 1,152 was published today (Dec 29) significantly changing the transfer pricing rules applicable to companies located in Brazil doing business with related parties abroad.

The PM provides for the improvement of the Brazilian standards to those internationally accepted, which adherence will be optional in 2023 and mandatory in 2024.

As previously informed by the Brazilian Internal Revenue Service (Brazilian IRS), the guidelines set forth by the PM adjust the Brazilian transfer pricing rules to the Arm’s Length Principle and to the international standards suggested by the Organization for Economic Cooperation and Development (OECD), focusing on the economic analysis of the transactions.

At a first analysis, the following topics of the PM can be highlighted:

a) broader definition of related parties (previously referred to linked parties);

b) outline of the controlled transaction, based on the analysis of the facts, circumstances and economically relevant characteristics of the transaction;

c) details of the comparability analysis;

d) inclusion of new methods such as Transactional Net Margin Method (TNMM), Transactional Profit Split Method (TPSM) and adjustment of existing methods such as the Resale Price method (RPM) to remove the previous fixed margins;

e) adjustments to the calculation basis (spontaneous adjustment, compensatory adjustment, primary adjustment and secondary adjustment);

f) specific provisions for transactions with intangibles (including hard-to-value intangibles);

g) provisions for intragroup services and for cost sharing contracts;

h) rules for intragroup restructuring transactions;

i) amendment of the rules applicable to financial transactions, including rules for centralized treasury management agreements and insurance contracts;

j) mandatory documentation, which will be subject to additional regulation by the Brazilian IRS;

k) the Brazilian IRS can simplify specific rules for certain situations; and

l) specific consultation procedure regarding transfer pricing, including the payment of specific fees.

The previous transfer pricing rules of Law No. 9,430/1997 were revoked, and the following rules were changed (i) the definition of tax havens (Law No. 9,430/1997); (ii) thin capitalization issues (Law No. 12,249/2010) and (iii) deductibility of royalties referring to trademarks, patents, and technical assistance.

A PM is a rule enacted by the President and must be converted into law within 120 days by the Congress; otherwise, it will not be enforceable.

Our tax team is analyzing in depth the new rules and the process of the PM conversion into Law. Any significant developments will be informed.